Commercial Vehicles 15th July 2020

Lighter Than Air: The Rise Of Nikola And The Age Of Hydrogen

Alastair Hayfield
Alastair Hayfield
Senior Research Director – UK

Alastair has over 15 years’ experience leading research activities in scaled, high-growth industrial and technology markets. As Senior Research Director of our Commercial Vehicles Division, he’s responsible for cutting-edge research on electric trucks and buses, autonomous trucks and off-highway electrification.

It’s a mistake to equate Nikola with Tesla
Multiple firms are developing on and off-highway heavy duty hydrogen vehicles
Infrastructure and hydrogen cost scenarios indicate strong, future demand
New business models have the power to be disruptive

It is often remarked that the hydrogen economy is always 10 years away. Well, for once, this is right. A number of factors – technology maturity, fuel cost, product availability, scale and government support – are aligning to drive growth of hydrogen fuel cell powered vehicles through the next decade.

Nikola’s public listing has driven renewed interest in hydrogen as a fuel source. But Nikola is not the only company developing hydrogen powered trucks. Nor is it the only vehicle application where hydrogen is being viewed as part of the necessary fuel mix over the next 10 years. Indeed, hydrogen off-highway vehicles, trains, boats, drones and light aircraft are available now and in development. This ‘scale’ of demand will help with technology maturity, lower costs and greater acceptance of hydrogen as a fuel.

Hydrogen Truck Scenario Forecasting

Interact Analysis will soon be publishing its latest hybrid and electric commercial vehicle forecasts. Part of this report will include a range of sophisticated and highly-granular scenarios by fuel type. For hydrogen, for example, there are major ‘levers’ that can be pulled in the model relating to the fuel input cost – green, blue or brown hydrogen – and the amount to which the re-fuelling infrastructure is subsidised, either using public funds or private companies (like a Nikola) take on those costs.

It is our expectation that some of the costs of the infrastructure will be funded using a mix of public and private funds, and this won’t be passed on as a cost to fleet operators. It is also our expectation that a mix of hydrogen from different sources will be ‘normal’. In a scenario where 50% of infrastructure costs are not passed on to fleets and a mix of mostly ‘blue’ hydrogen is used, then close to 30,000 hydrogen powered class 7 and 8 trucks could be delivered in North America in 2030.

How to think about Nikola

Part of our reason for writing this insight is the interest surrounding Nikola Motor’s public listing. After a flurry of intense activity, Nikola listed and saw its market cap exceed that of Ford for a period – an impressive achievement for a company that has not produced a vehicle yet and kudos to the Nikola team for this achievement. However, inevitably, the share price has fallen back in recent weeks as the initial excitement passed.

In the immediate aftermath we read all manner of takes on Nikola – some negative, some positive and some that don’t really seem to understand the market dynamics surrounding hydrogen commercial vehicles. As an analyst firm covering commercial vehicle electrification, we’ve taken time to develop our own opinion as to how the market should think about Nikola.

First up: we think it is a fundamental mistake to equate Nikola with Tesla. It is a quick and facile way of driving website clicks and, whilst there are similarities, they are few by comparison to the ways the companies differ. It does little to help the market judge the performance of Nikola and the adoption of hydrogen in heavy duty applications.

For one, the primary product focus of each company is different. Tesla is primarily focused on electric passenger car vehicles with, arguably, a ‘passing interest’, in electric semi-trucks. By comparison, Nikola is squarely focused on hydrogen (and electric) heavy duty trucks with a secondary focus on a pick-up truck and off-road vehicles.

The dynamics of these two markets are very different – brand desirability can (and does) impact the passenger car market. It’s clear that Tesla was able to build significant momentum for its products by engaging with passionate fans, way before its cars were affordable for most. By comparison, the commercial vehicle market is 100% driven by cost. No amount of style over substance is going to cut ice with operators so, for Nikola, it must work exceptionally hard to engage with fleets and prove cost efficiencies.


Much of the concern around Nikola, particularly its valuation, is that Nikola is a start-up that hasn’t built a vehicle and isn’t generating cash. We think this is somewhat short-sighted. In addition to being publicly traded, Nikola is backed by 3 major companies with a specific focus on commercial vehicles and renewables. CNH Industrial, the parent company of Iveco, is one of the largest truck OEMs in Europe. Bosch is one of the largest commercial vehicle suppliers and has its own, established hydrogen partnerships. Hanwha is a major manufacturer of photovoltaics which Nikola needs to drive its electrolysis facilities. We’ve written before about the credibility this should bring to Nikola in its pre-production phase but, more than that, it already provides some advantages for Nikola from a cost perspective.

First, Nikola doesn’t need to build a factory in Europe as it is taking advantage of its relationship with CNH to develop a production line at the CNH factory in Ulm, Germany. This will be a major cost saving compared to other start-ups that have to invest significant cash in breaking ground. Second, Nikola will have access to the components and purchasing scale through CNH and Bosch that will help to lower its overall price per vehicle.

It’s also important to realise that Nikola is not operating within a vacuum. There are multiple other companies, in multiple other markets, in multiple other applications developing hydrogen fuel cell vehicles. If Nikola were the only company pursuing a hydrogen strategy it would be reasonable, we think, to question the merits of developing a hydrogen fuel cell heavy duty truck without a surrounding/supporting ecosystem. However, this is not the case and, in reality, the cost of hydrogen production and fuel cell components will decrease as a result of the number and range of companies entering the market.

Business Model

Nikola’s business model – effectively a subscription/service model – that sees fleets pay a flat monthly fee per vehicle to cover the cost of the vehicle, fuel and servicing is also compelling and perhaps one of the most significant developments that Nikola can bring to market. It allows fleets to better manage costs (predictability) and creates a recurring revenue stream for Nikola that is less prone to the vagaries of the truck market cycle. The challenge – and this will need to be something that the market monitors – is the profitability of this model. This will largely be driven by the how low Nikola can drive the cost of the truck down and how low it can produce (or source) fuel. It is our opinion though that this could be one of the more critical metrics in Nikola’s success and, based on our own scenario forecasting, will be successful if Nikola can absorb some of the infrastructure cost and help operators source hydrogen from a variety of sources.


Infrastructure – hydrogen re-fuelling stations and hydrogen production – will also be critical to Nikola’s early phase success. Without easily accessible refuelling stations on well-travelled routes, it will be impossible to encourage fleets to overhaul their operations and introduce hydrogen trucks. It is clear that Nikola needs, amongst its priorities, to emphasise infrastructure roll out and communicate its progress with this to investors. If it can amortise the cost of building the infrastructure, this will lower costs for fleet operators and will also act as a long-term revenue stream as it will be able to sell the hydrogen to retail customers.

Another factor not discussed elsewhere, which may be a critical differentiator for Nikola, is its ability to innovate the overall truck design and connectivity portion of the solution.

The use of large, touch screen displays for both the instrument cluster and the center console will improve the driving experience and provide better information for the driver. This is not seen in designs from established OEMs and may be an attractive feature to both fleets and drivers.
A low, skateboard design for the main powertrain components means that there is more space in the driver’s cabin and that access is easier. Again, this may be an attractive feature to both fleets and drivers.
Finally, the use of over-the-air updates, whilst common in passenger cars, hasn’t been fully explored in the commercial vehicle market. Better use of software updates remotely could improve both operational efficiency and reduce downtime as the truck doesn’t need to return to a service centre for a software update.


When it comes to assessing Nikola’s performance, we are not calling for a “free pass” (nor do we expect its leadership team would want one). Nikola should receive scrutiny on its performance and ability to execute on objectives. However, if there is a similarity with Tesla that can be learned from it is this: start-ups don’t operate like established, public companies.

Nikola is unlikely to drive significant revenue or any profit in the short term – this is normal for an automotive company in pre-production where it has significant R&D expenditure, capital costs (buildings) and staffing costs. It is certain that performance – profit, cash – will fluctuate and probably isn’t an effective measure of the company’s long-term ability to execute on plan. Whilst a company cannot sustain losses indefinitely, it is important to focus on other metrics too:

How quickly can Nikola convert its 14,000 pre-orders into binding orders?
Can the Badger pick-up truck drive significant revenue/profitability in the short term or does it prove to be a distraction from execution on the truck program?
Is Nikola hitting key, communicated deadlines i.e. start of production, vehicles delivered to customers?
Are major fleet operators making substantial orders and/or reporting satisfaction with pre-production test vehicles and early deliveries?
Is the hydrogen refuelling network well established i.e. good geographic coverage, sufficient volume of production? And is it driving profits in the long term by offering fuel to other road users?
How many customers/fleets are engaged with Nikola’s leasing strategy where, for a fixed monthly cost, everything is included? This pivot to a ‘subscription’ model is likely to be the biggest factor in driving long-term sustainable revenue and profitability for Nikola. The other side of this coin is how cheaply Nikola can source/produce hydrogen as this will be a major cost lever in the profitability calculation. Regular details on costs and scale of production need to be shared.


We’re not calling for a free pass, but we are calling for a sensible assessment of the potential of Nikola based on metrics other than share price fluctuations and short-term profit/loss.
Nikola isn’t Tesla, and this is OK! Comparisons between the two companies aren’t very helpful and actually detract from some factors that could be important in Nikola being successful.
Nikola isn’t assured of success: there is a long, long road to execute on its plan. However, it has strong partners, a thriving ecosystem and a growing, global appetite for low and zero emission commercial vehicles.
There is now an established and rapidly growing market for heavy duty and intense duty cycle hydrogen vehicles. Whilst it will take a long time for sizeable market penetration, hydrogen is a key part of the fuel mix to reduce emissions.
A partially subsidised hydrogen refuelling infrastructure and mix of hydrogen sources is a very effective route to wider adoption.

This insight is taken from our upcoming Hybrid and Electric Truck and Bus – 2020 report.

Posted in: Commercial Vehicles.