Good morning. And welcome to Nikola Corporation’s Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. We begin today’s call with a short video presentation followed by management’s prepared remarks. A brief question-and-answer session will follow the formal presentation -- the formal prepared remarks.

[Operator Instructions] As a reminder, this conference is being recorded. It is my pleasure to introduce Nikola’s Director of Investor Relations, Henry Kwon. Thank you. Henry, you may begin..

Thank you, Operator, and good morning, everyone. Welcome to Nikola Corporation’s second quarter 2022 earnings call. With me today are Mark Russell, Chief Executive Officer of Nikola, and Kim Brady, Chief Financial Officer. The press release detailing our financial results was distributed shortly after 6 a.m. Pacific Time this morning.

The release can be found on the Investor Relations section of the company’s website along with presentation slides accompanying today’s call. Today’s discussions include references to non-GAAP measures. These measures are reconciled to the most comparable U.S. GAAP measures and can be found at the end of the Q2 earnings press release we issued today.

Today’s discussions also include forward-looking statements about our expectations. Actual results may differ materially from those stated and factors that could cause actual results to differ are also explained at the end of the Q2 earnings press release and on page two of our earnings presentation.

Forward-looking statements speak only as of the date on which they are made. Readers are cautioned not to put undue reliance on forward-looking statements. We will now begin a brief video presentation followed by prepared remarks from Mark Russell and Kim Brady. [Video Presentation].

Thanks for joining us. Q2 was important for Nikola, first quarter generating revenue from Nikola TRE BEV. We couldn’t have achieved this milestone without the extraordinary hard work and dedication of our outstanding team of people.

We are proud of what we have accomplished so far and we are so excited about continuing the strive to decarbonize heavy transport. Let’s start with things on the vehicle front. We produced a total of 15 Nikola TRE BEVs in Coolidge, Arizona during the quarter and we delivered 48 of those to our dealers around the country.

Two were delivered just after the quarter end and that will be reported with Q3 shipments. Our battery pack supplier, Romeo, continued to experience manufacturing challenges during the quarter. We lost a total of two weeks of production at Coolidge due to delayed pack deliveries.

On the customer front, we have completed and we are continuing numerous successful pilot and demo programs including several that have not been publicly announced, notable among the public programs are TTSI, Tiyaji Brothers [ph] Anheuser-Busch, Univar, Road One /IKEA, Benore Logistics Systems and Covenant with Saia starting this month and Walmart in September.

Average up and for all TRE BEVs in the field is an extraordinary 94% to-date. I’d like to highlight right now, what it takes to actually get zero-emission trucks into commercial service in hauling freight every day.

I think this further validates Nikola’s longstanding focus and strategy of providing a total solution including service, support, and most importantly in this case, charging and fueling infrastructure. When you commit to using zero-emission trucks you are also committing to the infrastructure that it needs to operate.

Let’s use our launch customer TTSI as an example. They have committed to 100 truck fleet of 30 TRE BEVs and 70 TRE FCEVs. They are up and running with the TRE BEV and a TRE FCEV prototype by using mobile electric charging and mobile hydrogen fueling equipment the Nikola has shall provide.

Nikola’s mobile charging trailers and a temporary-to-permanent version that we call on Eskid, as well as mobile hydrogen fueling systems we have helped developed can get a customer started, but continuing to scale up to fleet level infrastructure can require additional significant and permanent electric power for charging and permanent heavy duty infrastructure for hydrogen fueling, all located so that they will work with existing operations.

Here again Nikola is helping to provide this critical and necessary infrastructure as you saw in our announcement this morning of three commercial hydrogen dispensing stations in Southern California. Lead time for this infrastructure varies by location, but it can be significant.

For example, in addition to normal permitting and local approvals, if charging infrastructure at a given location requires an upgrade to power capacity, utilities switchgear or sub-station infrastructure, the lead time can be up to a year or even longer.

Lead times for hydrogen dispensing locations similarly vary by location, but generally they are more than a year. In some cases this infrastructure lead time along with any hesitancy or delay in committing to or commencing construction could be a limiting factor in the growth of zero-emission customer fleets.

We began building the first batch of six Nikola TRE FCEV beta prototypes during Q2, which we expect to complete in August. The second batch of six TRE FCEV betas will start later this month and should finish by the end of Q3. The third batch will begin in Q3 and be completed by Q4 of this year according to plan.

Specific changes from the alphas to betas include increased hydrogen storage capacity and improved efficiency of the fuel cell power module. These beta trucks will enable further engineering development and performance validation testing. We will build the gamma variance next year in Q1 and for our own captive fleet and additional customer pilots.

We still expect to begin North American cereal production of the TRE FCEV in the second half of 2023.

Moving on to Energy, the land for our Arizona hub is now under contract, we will announce that location after the closing and then along with our partner TC Energy will break ground on Arizona’s first hydrogen production hub by the end of the quarter.

Other hub locations we have announced so far including and other partner project with TC Energy located in Crossfield, Alberta, and our project in partnership with Wabash Valley Resources in Indiana.

On the station and dispensing front, this morning we announced the progress we made on the three station locations in Ontario, Colton and Carson California. We have begun the permitting process in order to long lead time equipment for these stations and we expect that will be complete in Q4 of 2023.

In addition to what we publicly announced, there are numerous other production and dispensing projects in our development funnel and we will update you on those when it’s appropriate.

We are on track to complete Phase 2 of our Coolidge, Arizona manufacturing facility by the end of Q1 2023, which will give us up to 20,000 units a year of nameplate capacity. The facility is capable of assembling both of BEVs and FCEVs on the same line. We will also establish a line for assembly of our Bosch fuel cell power modules.

Timing for our Phase 3 of Coolidge will be announced at a future date and that expansion will allow us to ramp production up to 45,000 units a year or more. In June, our expanded European joint venture with IVECO began building the first EU spec TRE BEVs. These are our four-by-two variance that are targeted to the European market.

The first three alpha builds are expected to be complete by Q3. We will then build seven beta trucks starting in the third quarter for fourth quarter completion. Pre-series BEVs will take place during the second quarter of 2023 and we anticipate shipping the first production of EU TRE BEVs to customers in the second half of 2023.

During the second quarter, the JV also began building EU spec TRE FCEV betas. The build of the first batch of the three trucks started in March and should be complete by the end of Q3.

In July, we began building the second batch of 10 trucks, which should be complete by Q1 next year and EU spec TRE FCEV production is expected to begin in the first half of 2024. The joint venture with IVECO was originally a contract manufacturing entity only.

However, Nikola and IVECO have now agreed to strategically expand the JV to include product development and vehicle engineering. This represents the maturing of our relationship with IVECO and the right next step for the JV to become more of an independent entity. Over to Kim now to take you through the numbers..

Thanks, Mark, and good morning, everyone. There is a lot to cover today. So let’s begin with the financial overview for the second quarter. In Q2, we reported revenues of $18.1 million on deliveries of 48 TRE BEVs and four MCTS.

As Mark mentioned, we produced 50 TRE BEVs during the quarter at the low end of our guidance and two were delivered in the first week of July. The primary reason for our deliveries coming in at the low end of our guidance range was caused by two weeks of production losses in Q2 related to battery pack delivery delays from Romeo.

Let’s go through the numbers and I will outline what drove them and what we expect in the second half of -- in the second half. First, regarding gross margin, the TRE BEV trucks we produced and delivered in Q2 are the most expensive battery trucks we have ever built.

The objective was to do whatever it took to ensure the components were available at the assembly line to start the build of TRE BEV trucks. Nonetheless, there are a few items that we could have better foreseen in Q2 that we ultimately did not. There were two contributing factors to our gross margin guidance coming in lower than expected.

The first being shipping and freight cost. We recorded $13.7 million in inbound shipping freight and duty expenses for the quarter, representing approximately 29% of our cost of revenue. Of this $13.7 million, $3.3 million represented duties and taxes, while $10.4 million came from freight expenses.

Of the $10.4 million, roughly 80% of expenditures were expedited air freight. The impact on the cost of revenue was magnified because we purchased and received more components than we used in production due to the delays that we referenced earlier.

Thus the impact of these two factors when our gross margin at our current revenue level was more pronounced than if we had already scaled, we had not budgeted this level of impact in our guidance and it is something we will be better prepared for in future quarters.

To reduce our freight cost burdens going forward, we have started shifting the shipment of most of our components to ocean freight. We are also accelerating our localization efforts of certain components from the EU to North America.

From these two actions, we expect a meaningful decrease in per unit inbound shifting and freight cost, and a gradual easing of inbound freight cost pressure on our gross margin mix. Next, let me provide some perspective on the quarterly inventory write-down of $7.5 million, representing a $4.1 million sequential increase.

In second quarter, the net realizable value or NRV adjustment represented 96% of the write-downs. As you may be aware, our inventory costs have risen in line with inflation and significantly more for battery cells and Q2 us no exception. On the U.S.

GAAP, when our inventory value rises above a truck’s expected selling price or NRV, a reserve adjustment is required. This situation was compounded by holding more inventory than we would have held if no production delays occurred. If you notice on the financial summary table in the deck, R&D expenses decreased by $11.5 million from Q1 to Q2.

This is because prior to our commercial deliveries in Q2, manufacturing expense items, typically part of the cost of revenue were recognized as R&D expenses under U.S. GAAP, including inbound shipping and freight inventory write-downs and SG&A expenses. Q2 EBITDA sequentially fell by $14 million to negative $163.6 million.

We think it makes better sense to look at our results at the EBITDA level because of the reclassification items in Q2 regarding cost. We believe it is a better quarter-over-quarter comparison to focus on cost before interest and taxes this quarter given what they imply about our cash burn rate.

Equity in a net loss of affiliates decreased by $1.5 million in the second quarter to $1.3 million driven by $1.2 million equity in net loss of Nikola-IVECO Europe. As we shared in our Q1 earnings call, our European joint venture with IVECO now engages in product development and vehicle engineering in addition to its contract manufacturer role.

We recorded a $173 million net loss for the quarter and basic and diluted net loss per share came to $0.41. Basic and diluted non-GAAP net loss per share came to $0.25 beating consensus estimates. On a non-GAAP basis, adjusted EBITDA came to a negative $94.3 million.

Adjusted EBITDA excludes, one, $54.8 million in stock-based compensation, two, $13.0 million for legal expenses to pay Mr.

Milton’s attorney’s fees under his indemnification agreement, three, $1.3 million for equity and net loss of affiliates mainly from our IVECO JV in Europe, and four, a net $0.2 million loss for the revaluation of financial instruments including warrant liabilities and derivatives.

On the balance sheet, we ended the second quarter with $529.2 million in cash and equivalents, including restricted cash up from $385.1 million at the end of Q1.

The $144.1 million increase came from, one, the $200 million private placement of convertible notes we placed in June with Antara Capital, and two, $50 million proceeds from the issuance of a promissory note collateralized by Nikola on equipment and restricted cash.

In addition to the $529.2 million in cash and equivalents, we still have $312.5 million available liquidity through our two equity lines with Tumim Capital. At the end of June, we have total liquidity of approximately $841.8 million, up from $794 million at the end of Q1.

As of the end of June, we have sufficient capital to fund our business for the next 12 months of operations. Given our target of keeping 12 months of liquidity on hand at the end of each quarter, we will continue to seek the right opportunities to replenish our liquidity on an ongoing basis while trying to minimize dilution to our shareholders.

We are carefully considering how we can potentially spend less without compromising our critical programs and reduce cash requirements for 2023. We will provide you with detailed guidance for 2023 on our Q4 2022 earnings call.

But for now, a good way to think about how we can achieve our goal is to consider it in the context of our ongoing CapEx requirements at the Coolidge Plant. For example, with the completion of Phase 2 by the end of Q1 2023, our Coolidge plant will achieve a design capacity of 20,000 units.

While we have not made our 2023 production plant public, the 20,000 units in annual capacity will be sufficient to allow us to achieve our 20 -- 2023 and 2024 production targets. In 2023, Coolidge manufacturing facility related CapEx for Phase 3 is approximately $345 million including obtain right [ph].

Delaying this phase of our expansion to 2024 allows us to reduce our 2023 cash needs and fund raising targets in 2022. We will continue to monitor market conditions and remain opportunistic about raising capital. Moving on to our Q3 guidance, we expect to deliver 65 to 75 Nikola TRE BEVs for $21.1 million to $24.4 million in revenues in Q3.

We anticipate our gross margin to be between negative 240% and negative 250%. As we explained in the Romeo merger call, we have agreed to provide Romeo with interim funding to ensure continued operations.

The funding comes in two parts, one, up to $20 million in a temporary price increase for each pack delivered through the transaction close plus, two, $15 million in a senior secured note. The temporary price increase for the packs will weigh down our Q3 and Q4 gross margin.

We expect, however, to make notable improvements in inbound shipping and freight cost and benefit from the operating leverage effects of delivering more vehicles on labor cost, without Romeo merger impact, the gross margin would be up -- would proximate negative 150% to negative 160%.

We anticipate a range of $80 million to $85 million in R&D expenses and $80 million to $85 million in SG&A, including roughly $58 million in stock-based compensation. CapEx for Q3 should be $85 million to $90 million as we expect station CapEx FCEV truly and hydrogen hub spending to catch up.

Regarding fiscal 2022 guidance, we have not revised existing 300 to 500 truck delivery. Still given the battery charging infrastructure challenges, Mark mentioned, we are more likely to hit the lower end of that guidance range.

The merger with Romeo will introduce new elements to our P&L in several ways, especially in the short run, which I will discuss in some detail. We have planned to revise our full year financial guidance post transaction close and share it with you in our Q3 earnings release.

We are currently working on the merger pro forma, which will serve as the basis for our new full year guidance. As many of you may anticipate, the merger with Romeo will cause our full year guidance to change.

This is because, one, negative gross margin impact from the temporary pack price increase in Q3 to a lesser extent in Q4, negative gross margin impact from the existing Romeo customer contract runoff, three, incremental R&D and SG&A expenses of Romeo post-merger, and four, transaction costs and purchase accounting adjustments that may further impact our Q3 and Q4 OpEx.

We will come back to you with our revised full year guidance at our Q3 earnings call. While second half will be challenging from a gross margin angle, we expect 30% to 40% cost reduction benefits for the non-battery cell related pack cost by the end of 2023.

Key cost cutting initiatives will involve switching from machine to casted packing closures and using the combined purchasing power of the merged entity to optimize the supply chain. We believe this is achievable because we have had about 10 manufacturing engineers working on site in Romeo since early 2022 to support Romeo’s production.

With a good accumulated understanding of Romeo’s operations, we have identified several areas of operational improvements that will begin to be implemented immediately following the transaction closing, longer term we are targeting up to $350 million in annual battery pack cost savings by 2026.

Regarding our supply chain, part shortage challenges still remain, although the visibility and availability of components have somewhat improved, but we are not out of the woods yet. We previously stated that one of our biggest constraints was a consistent supply of modules and packs from Romeo.

Our proposed merger with Romeo takes us a step closer to ensuring a dedicated and consistent supply. Perhaps a more significant challenge that faces us and the industry is inflation and its impact on margins. We are subject to a commodity pricing increase from LG, which has increased our battery cell price by approximately 30%.

The adjustment is calculated every six months based on the price movements of certain battery cell chemistry metals for the previous six months. We are uncertain when the critical metal prices for battery cells will normalize and come back down to the pre-Ukrainian war prices and how much of that increase we can successfully pass on to our customers.

This is something we are grappling with, and unfortunately, we have little control when it comes to battery cell prices. This concludes our prepared remarks. We will use the remainder of the time to address your questions.

But before we open the line to analyst questions, we would like to take this opportunity to answer some questions from our retail shareholders, Henry?.

Thank you, Kim.

The first question from our individual investors is, when can I see Nikola on the road? I have never seen any of your vehicles on the street, why?.

It is exciting to see the trucks on the road, more and more are out there hauling freight and being excited every day as pictures and videos that are increasingly showing up online. You have a better chance of seeing one if you are in one of our target launch geographies such as California. Good luck with your TRE spotting..

The next question from our investors is, considering the number of EVs entering the market in the next several years, how is Nikola planning to differentiate itself to ensure long-term success as slow as the first to market, Rivian secured a contract with Amazon and Ford has the capacity to ramp production quickly than Nikola has?.

First, we should clarify that unlike these companies, we build only U.S. Class 8 and European heavy-duty commercial trucks and we are addressing the short-, medium- and long-haul commercial freight segments, so that’s an immediate difference between us and them. We are also one of the first truck OEMs in the market for Class 8 BEVs.

We are likely to be the first OEM to commercialize Class 8 FCEVs. But in the long run, which we are really going to differentiate Nikola is energy infrastructure. On slide three of the deck, you can see that the total addressable market for just hydrogen is bigger than the entire market for trucks..

Thank you, Mark. The next question coming from our individual investors addresses a similar topic.

What plans do you have to excite investors about what your company is bringing to the table? Do you have a plan to become profitable, if so, when?.

I think Mark has already discussed Nikola’s value proposition, so let me share some thoughts about achieving profitability. During our Analyst Day in March, we stated that we are looking to achieve a positive gross margin for our TRE BEVs by the end of 2023 and the end of 2024 for our fuel cell electric trucks.

Under our basic roadmap, we would like to get to positive EBITDA by the end of 2024. The primary assumption behind this roadmap has been that as we continue to scale, we should be able to spread our fixed costs over a greater volume and reduce our BOM cost.

From our current vantage point, inflation remains a great unknown that makes our path to a positive gross margin a challenge, especially the cost of battery cell prices. While OEM have started to raise the fees in line with inflation, it remains unclear to what extent we may be able to pass through that increase.

So operating leverage will be one of the biggest factors driving our future gross margin, but potential headwinds from the impact of prolonged inflation could extend our existing timeline..

The next question from our individual investors is, if proposition to its past, will you use the extra shares for capital immediately diluting the stock or on an as needed basis?.

A great question because it allows us to discuss something here on a topic on which many investors had asked us for clarification during the voting process.

As you may know proposition to past, but we feel that this is still a very relevant question, because many people who are not aware of what our committed share count was for coming into the end of Q2. While our fully diluted number of shares stood at 495 million on June 30.

If we included the committed shares of options are huge and warrants, as well as reserve the share for our E-Lock and convertible notes, the share count came very close to 570 million shares.

This left us with a sufficient number of shares to acquire Romeo without having to come to market, so the increase in the authorized number of shares that was just approved will not be used to fund our merger with Romeo.

Having said that, the 200 million shares increase in the authorized number of shares will leave us with the flexibility to pursue future capital raising opportunities..

Thank you, Kim. Operator, let’s open the line now for analyst Q&A..

Thank you very much, sir. [Operator Instructions] The first question comes from Jeff Kaufman from Vertical Research Partners. Please proceed with your question, Jeff..

So I want to take a look at kind of two implications of the guidance here. To get to the range of 300 to 500 vehicles and I know you said the low end, that’s implying almost 200 vehicles in the fourth quarter.

Does this sound right based on the guidance you are giving and should this be considered kind of a rolling ramp rate as we enter 2023?.

Jeff, this is Kim. Great question. As you know we have been consistent that our delivery and production would be skewed towards the second half of the year. We talked about in Q2 we had some production hiccup due to delays in battery modules and pack delivery.

In Q3, as you know, we are trying to get better control over the situation as we are going through the merger and so when you think about in terms of our guidance for 2022 and the second half and Q3 and potentially Q4, I think, the way you are thinking about that is reasonable, as we get into 2023, we anticipate actually picking that up significantly..

So a fair implication based on the low end the year, 300 to 500, but be 200 give or take for fourth quarter?.

Well, I think, if you do the math and if you take low end of our guidance and then subtract Q2 and Q3 then I think that’s reasonable in terms of how you are thinking about that..

Okay. And then just a question on gross margin, pretty clear the guidance you are giving on the $20 million of assistance to Romeo through the gross margin. And I think your commentary was 240% to 250% in 3Q, but without the $20 million it would be in the 150% to 160% range.

Again, as I am coming down the ramp and we get to the end and you close Romeo, should we assume you are heading back towards that range or with some of these other factors such as continued supply chain cost continue to push that gross margin higher until we solve some of these issues sometime next year?.

And Jeff, we have planned to do better than that, as you know, we talked about our inbound logistics cost, which is some loss 30% of our gross cost of goods sold, which is very high, and as you know, that represented about 80% air freight, and we are looking to shift that and we are doing shifting actively to ocean freight, we know that that’s going to significantly decline, as well as duties and taxes.

So we are actively working on that and we are looking to achieve something lower. But we will be transparent in terms of the -- what the Romeo impact is so that you have good idea in terms of what kind of progress that we are making in terms of our execution..

All right. Well, congratulations on the shareholder vote and then the news flow continues to be terrific. Thank you..

Thanks, Jeff..

Thank you. The next question comes from Mike Shlisky from D.A. Davidson. [Operator Instructions] Mike, you may proceed with your question. Thank you..

Yes. Thank you and good morning.

Average selling price in the quarter of your trucks were a little bit higher than all, and you have shown some good uptime in the slides today, so I’d be curious what we saw in last quarter’s numbers as far as average selling price is that a good run rate for the next couple of quarters, I know the later orders are a little bit higher if the average selling price for possibly next year and I am just curious maybe thoroughly the most recent cost you have done on price given the uptime in the performance and how you -- can you just share with us, we have a lot of confidence on even further price increases going forward given the trucks to deliver thus far?.

That’s a great question, Mike. The market is figuring out what the -- we know what the pricing is going to be, of course. And as you point out, at this point, we have the longest range truck that we know about out there and it’s performing extremely well.

So, the feedback is generally supervisory across the Board and that’s why we are confident that we are going to have pricing that’s going to be in the upper end of the range once the market gets clear and settles on pricing.

Of course, we have started at what’s kind of the prevailing pricing for battery electric trucks at this point, it is not that many players in the market and almost nobody at volume. So the market is still in the early stages in figuring out what the pricing is, but as you said so far pricing is coming in higher than previously expected..

Okay. Great.

And for my follow-up, I wanted to ask about the hydrogen stations, particularly the ones in Colton and the Long -- and Port of Long Beach, are these going to be owned and operate, I just want to confirm that and can we -- and trying to figure out the numbers behind? Is it appropriate to go back to those original spec documents and some of those original build out models and things like that, can I get a feel for those numbers or have things changed due to inflationary changes and how you plan to address the market?.

Mike, let me adjust that in two parts. First of all, all the stations be wholly owned by Nikola and it’s unlikely that we will do a station -- two stations that are 100% us, we generally do these things in partnership. The one in Ontario will remain a TravelCenters of America location and will be dispensing in a portion of that existing station.

The other two that you referenced, those would be ones that we had built from scratch and when we are likely to be the headline there.

But don’t be surprised if we do things in collaboration with other companies at most of our station locations and definitely at our hubs, as we have announced, so far all three of our announced hub projects involve partnerships and the station projects will often involve partnerships as possible.

We would build 100% owned and standalone stations as possible. And I am -- actually I am sure we will do some of those. But, generally, we like to do these things in partnership with other players.

In terms of the -- what was the second part of question?.

In terms of CapEx..

And just with the model. Yeah..

Right..

That’s right..

So we want to make sure that you understand, these are dispensing stations only. These are not stations where we will generate hydrogen and expense. So when we think about CapEx for dispensing stations only, they typically run $6 million to $8 million or so.

And as Mark alluded to when it comes to TA, this is a joint venture, so we will both be funding CapEx for dispensing hydrogen only..

Yeah. So don’t -- the spec level documents are more than two years old now. Those -- our technology approach has changed slightly. And most of our production, if not all, will be in hub locations at this point and what we have at the dispensing stations is dispensing equipment only, so we are just going to have static storage and dispensing equipment.

The other difference is, we are more likely to not have on site compression and because we are leaning very strongly towards distribution of hydrogen in liquid form..

Okay. Well, thanks for that color. I appreciate it. I will it pass along..

Thanks..

Thank you. The next question comes from Greg Lewis from BTIG. Please proceed with your question, Greg..

Yeah. Hi. Thank you and good morning and thank you for taking my question. And just following up on Mike’s question around hydrogen, what, I guess last week, it looks like there has been -- it looks like there is finally get the beast some progress in the production tax credit for hydrogen.

I guess, what I am wondering is, as you think about, not the station level, but the hub level strategy.

How should we think about that impacting or maybe potentially this -- realizing there still a long way to go for this tax benefit for hydrogen production? Is there any way to think about how this could potentially pull-forward your decisions around those hydrogen hubs that seem to be part of the longer term story for the company?.

Yeah. Great question, Greg. The PTC, the production tax credit, if it is included in legislation that passes, and as you said, it looks more likely now that mentioned has got on Board and our own senator’s Sinema here in our headquarter, State of Arizona, has previously seemed supportive of that, so we will see if she still is.

And assuming, she will go through reconciliation and get signed by the President, that’s $3 nationwide incentive depending on the amount of carbon intensity that the hydrogen that you are producing.

Of course, we are targeting very low carbon intensity hydrogen at our hubs, whether they are electrolysis based as will be the case in Arizona or whether they are carbon capture based from petroleum sources like they are in Indiana.

We think we are going to have very low carbon intensity, pretty green hydrogen for these hub locations and we think will qualify for a good portion of that incentive, which will be currently being tagged at up to $3 per kilo depending on the intensity.

When that hydrogen is dispensed in a state where there is an additional incentive like California, where you have the LCFS credit, that’s up to an additional $3 per kilo for dispensing there, and of course, that’s our launch geography for both battery electric and hydrogen fuel cell trucks.

So, we are looking forward to that, that would be powerful incentive. We would have up to $6 per kilo incentive for dispensing in California.

And as you have seen, we are targeting the cost of production for the hydrogen is less than half of that, so even with distribution station costs that would be pretty much off the hook in terms of economics for hydrogen and getting started here, and of course, where we had of the game here with strong progress on hubs and stations..

Yes. One more comment. Obviously, we are still somewhat in early stage, we don’t know ultimately what it is going to pass. We are cautiously optimistic. As Mark talked about, potential economics is compelling.

We have not factored in any of those incentives in any of our projections and our forecast, and as we get closer and once that bill passes, we will communicate as to ultimately what the impact might be from our perspective..

Okay. Great. Super helpful. And then, just I guess, congratulations on the acquisition of Romeo Power, as you are going to -- look to get vertically integrated. With that being said, your other battery supplier, Proterra, on their quarterly call, talked about delivering the prototype batteries to DPU.

I guess, what I am wondering is, what is the process there, will those prototypes become operational? And I guess, bigger picture as I think about those -- could those actually be on vehicles later this year, potentially moving the needle from the low end of guidance maybe a little bit higher or any way to kind of connect the dots there with those Proterra batteries now being a source of batteries for the TRE?.

Well, first of all, Greg, Proterra is a valuable supplier to us and will remain a valuable partner and supplier to us on batteries. And we are working very hard with them and they are doing a great job as we go through the testing and validation process. That should be completed this year.

So, we should have them available to us to add to production by the end of the year, if not the first quarter of next year. So next year, we will definitely have Proterra batteries available to us based on current projections, without commenting on the impact that may or may not have in terms of our capacity to produce.

We are really excited about having that second source, particularly in Europe, where we don’t have any Romeo production assets. And as you mentioned several times, we are getting real tired of moving stuff around the world. We want to localize production wherever we can and batteries are heavy and expensive to move from U.S.

to Europe, so we are looking forward to Protera’s help to get us localized production in Europe going forward..

Okay. Super helpful. Thank you very much..

Thank you. [Operator Instructions] The next question comes from Bill Peterson from JPMorgan. Please proceed, Bill..

Yeah. Hi. Thanks for taking my questions.

I wanted to turn it and also understand just the revenue guidance standalone for Nikola and why wouldn’t be -- why it would be different maybe even higher than the prior one relating to pricing? And I guess my question is, all these deliveries seem to be dealers at first, but what about the actual end customers, are all these going to be through the dealers.

And if so, I guess, how is the pricing mechanism set? I am just confused, I heard it’s higher than what you put in your prior for the guidance, just trying to stand out how to think about the price in the back half of the year?.

Bill, great question. As you know, the pricing is the same ultimately when we sell to dealers and dealers sell to end customers, we are carefully coordinated and joined at the hip. And so we are joined in marketing and working with customers.

We understand especially at this early stage, we are going to be heavily involved in facilitating sales with customers even though we are going through with dealers.

While we are having pricing discussions, we are talking to our customers ultimately if and when it comes to what can we pass-through with respect to increase in battery cells, it’s very fluid as you know.

And if there is a large order, we may need to potentially consider some discount, but those are fluid discussions and ultimately we will have a better idea. At this point, when you think about our guidance for Q3, we try to be a little bit conservative and we have now $325,000 average sell price.

But once, again, we are looking to do better than that..

We are really pleased to have our dealer partners in place. I think the wisdom of that is being shown currently as they help us manage the complexity of getting charging and then fueling infrastructure in place at customer locations or new customer locations where it’s needed.

Our dealers are a very experienced and substantial operations in the geographies where they service. They have the existing, usually off-road and heavy-duty equipment that they service and support and sell. So they are -- and they are also generally, a number of them are experts in distributed power and local power.

So that’s -- they are just perfect for what we are trying to accomplish here, they are great partners. And as you mentioned, it’s this quarter we have been filling the dealer pipeline, getting inventory, making sure they have inventory to sell, that they have plenty of vehicles to demonstrate for pilot programs..

Okay. Thanks for that color. My second one is related to cash and it sounds like you no longer expect to need to raise capital in the second half. But I try to understand cash burn, you have a big jump in receivables and inventories, so working capital try to seem to be pretty negative.

Yet, we are going to have worst gross margin trends here in the second half. You didn’t reiterate CapEx, but maybe that’s sort of second question, is CapEx going to still be in the $300 million range.

Just trying to understand how we should think about the cash burn over the next several quarters into next year?.

And, Bill, we have been fully consistent in terms of how we think about cash and we are always looking to have enough cash for next 12 months of operations. What we have said, with the end of June, we have sufficient cash for the following 12 months of operations.

Having said that, as you know, our current cash burn rate based on financial statements is running around $55 million per month and so it really depends on how much cash and liquidity we want to end up at the end of this year.

Having said that, once again it’s important for us to make sure that we have adequate cash for 2023 and so what we have stated is that we are going to be opportunistic in terms of when we raise cash.

But you should be assured that at any given time end of each quarter we are managing our liquidity in a way that we have ample cash as liquidity for the following 12 months of operations. When it comes to CapEx….

Yeah..

… as you know, we talked about, especially when it comes to hydrogen ecosystem and infrastructure, we are going to be asset light and capital efficient. So as we announce hydrogen hubs, we will be looking for partners and we have also stated that TCE is already our partner when it comes to Arizona hub.

And so when we articulate and talk about how we plan to move forward, then you will have much better idea. But our CapEx requirements for those funds will be very, very low..

I am sorry, $300 for the full year or should be considered lower than that?.

What you mean by?.

In the prior guidance..

Pardon me. Yeah..

In the last quarter and I guess you are drawing guidance, but you had -- in the last quarter you had put a $300 million just kind of the mid points of CapEx.

I am just wondering how to think about that though as you don’t have that for the full year maybe related to Romeo, but just standalone Nikola how to think about CapEx?.

Sure. As you know for first six months, we were pretty efficient in terms of CapEx. Most of the CapEx were related to our Phase 2 expansion and equipment and investment in affiliates and so it came out to approximately $80 million or so year-to-date.

I think we have talked about for Q3 around $90 million would be a good estimate and so we are running favorable in terms of full year CapEx guidance. However, we do anticipate that we will be catching up in Q3 and Q4. And so, you should work with what we have originally guided for the full year in terms of CapEx..

Thanks for the clarification..

Thank you. [Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks. Thank you..

Thanks everybody for dialing in and we will talk to you next quarter. Thanks..

Thank you. This concludes today’s conference. You may disconnect your lines at this time and thank you very much for your participation..