In this piece, we analyze aspects of Nikola Motor Co.’s business model irrespective of the company’s claims about its technology and the economics of hydrogen production.

We find a Gordian knot of contradictions and challenges that must be addressed simultaneously by a strategic and operationally obsessed management team. Nikola’s initially small, fixed network of fueling infrastructure will limit its go-to-market to private fleets and dedicated carriers, but its strategy of insourcing preventative maintenance — crucial to the unit economics of its trucks — will drive tractor downtime higher, lower asset utilization, and weaken service levels to a level potentially unacceptable to dedicated customers.

The prospect of building out a network of 700 hydrogen production and fueling stations that are exposed to volatile power (electricity) markets on the cost side is an Everest-size challenge. Nikola’s proposed solution, to truck hydrogen from electrolysis stations to fueling stations located where electricity prices are higher, introduces further complexities, in our view.

To be clear, none of these obstacles are insurmountable in themselves. But they must be addressed simultaneously as Nikola’s business scales, and doing so will present significant financial and operational challenges. Nikola has yet to mass produce a vehicle; its management team has not yet demonstrated that it is capable of executing a highly complex business model that has bottlenecks and trade-offs at every turn.

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