Nikola Corporation's Q1 2024 earnings call was filled with the usual buzzwords - "execution," "flywheel," "hydrogen highway" - designed to instill confidence in investors. But beneath the optimistic veneer, a closer examination of the transcript reveals a potentially concerning shift in strategy that other analysts seem to have missed: Nikola's increasing reliance on landing large, national accounts, even at the expense of short-term profitability.

While the company maintains its full-year delivery guidance of 300 to 350 hydrogen fuel cell electric trucks (FCEVs), the emphasis on national accounts with fleets of over 1,000 trucks signals a departure from their previous focus on smaller, regional fleets. This pivot is driven by the need for "meaningful volume" to kickstart Nikola's so-called "profitability flywheel." The idea is that securing these massive accounts will provide the scale needed to optimize supplier costs, drive down the bill of materials, and eventually achieve profitability.

However, the critical question remains: is Nikola sacrificing too much in the pursuit of volume? Both CEO Steve Girsky and new CFO Thomas Okray admitted that they are "being more forgiving on the economics of the initial deal" to attract national accounts. While they deny outright "price cuts," the implications are clear. Landing these large customers likely involves accepting lower margins and potentially even losses on initial truck sales.

The transcript offers several hints to support this hypothesis. Okray states that "big customers get better price deals than smaller customers," and that achieving higher prices is difficult when national accounts represent a larger portion of the business. Girsky echoes this sentiment, emphasizing that Nikola will not "wrestle with the economics at the expense of getting the volume on the road."

This strategy raises serious concerns. First, it indicates that Nikola's current cost structure is simply unsustainable at current production levels. Despite the company's claims of exceeding Q1 revenue expectations, their gross loss still stands at a staggering $57.6 million. Moreover, the average sales price of $381,000 per FCEV, while up sequentially, is unlikely to cover the reported $679,000 per unit in variable cash costs, let alone the fixed costs and accruals.

Second, relying on national accounts for volume could create a dangerous dependency on a small number of customers. Should any of these deals fall through or face delays, Nikola's entire "flywheel" strategy could crumble, leaving them with unsold trucks and mounting losses.

Third, prioritizing volume over profitability could lead to a downward spiral. By accepting lower margins on initial sales, Nikola may be setting a precedent that will make it even more difficult to raise prices in the future. This could trap them in a low-margin, high-volume business model with an uncertain path to profitability.

The transcript also reveals other troubling signs. The company now expects to opportunistically sell its existing battery electric truck (BEV) inventory in 2025, a year later than previously anticipated, due to ongoing battery supply constraints. This suggests that Nikola's ability to ramp up production, even if they secure the desired national accounts, may be limited by external factors.

Furthermore, the lack of concrete financial guidance beyond unit deliveries raises questions about the company's ability to achieve its long-term goals. Previous targets, such as EBITDA positivity by 2025, remain unaddressed, while the focus shifts towards "gaining momentum" and "building the order book."

While Nikola's ambition to decarbonize trucking and build a hydrogen ecosystem is laudable, their current strategy appears overly reliant on uncertain outcomes. The "flywheel" concept, while appealing on the surface, could mask a deeper struggle to control costs and achieve sustainable profitability. Investors should be wary of the emphasis on volume at any cost, and demand greater clarity from Nikola on their financial roadmap beyond optimistic buzzwords.

Nikola's Financial Performance

Reference: Nikola Corporation Q1 2024 Earnings Call Transcript - Seeking Alpha

FCEV Deliveries 40 Average Sales Price (FCEV) $381,000 Variable Cash Costs (FCEV) $679,000 Gross Loss $57.6 million

HVIP Voucher Market Share (Class 8 Trucks)

Reference: Nikola Corporation Q1 2024 Earnings Call Transcript - Seeking Alpha

HVIP Vouchers Requested (2023 - March 2024)

"Fun Fact: Did you know that Nikola's name pays homage to the famed inventor and engineer Nikola Tesla, a pioneer in electricity and power systems? It's a fitting tribute, considering the company's own ambitions to revolutionize transportation with its zero-emission trucks. However, unlike Tesla, Nikola is facing a much steeper climb to profitability."