Nikola Corp. is liquidating battery pack maker Romeo Power, which it acquired less than a year ago for $144 million in stock.
The move forces startups suing Nikola for canceling Romeo orders to campaign for a potential payout for alleged breach-of-contract damages.
It also removes a distraction for financially strapped Nikola, which is turning its focus from making battery-electric trucks to fuel cell electric vehicles (FCEVs). The hydrogen-powered trucks only need two battery packs compared to nine for battery-electric vehicles. These packs are obtained from Proterra Inc.'s facility in Greer, South Carolina.
Nikola retains the license to use the Romeo technology
Nikola maintained a license agreement to use Romeo technology for a build-to-order plan for Tre BEVs, but it didn't generate the customer interest Nikola had anticipated since production began a year ago. The company announced Wednesday that it sold 66 Tre BEV trucks in the second quarter and built just 33. Higher retail sales helped reduce the inventory of unsold trucks.
A multi-truck fire at a property at the Coolidge, Arizona plant remains unexplained. Nikola initially said the June 24 fire was of suspicious origin. On June 16, Nikola announced the layoff of 270 employees. A battery defect is also possible, according to a June 27 report by Electrek.
Nikola and Romeo terminated contracts for other customers
The outright purchase of Romeo in July 2022 kept Nikola production going. If Romeo failed, Nikola would have had to stop production, even though the company received only one set of batteries a day from Romeo. After the purchase, Nikola found that Romeo had reduced each pack by $110,000. Nikola said it would take five quarters to bring the cost of the batteries down.
At the time of the sale, Nikola said it would honor Romeo's contracts with other electric truck manufacturers, but had no plans to become a “battery dealer.”
Ultimately, Romeo, which operated as a Nikola subsidiary, failed to honor its commitments to Lion Electric Co. and Lightning eMotors, startups that made electric school buses and other electric vehicles. Both Lion and Lightning sued Nikola.
“We would like to settle the damages, but we have since moved on, which means we have now integrated our CATL [Contemporary Amperex Technology Co. Ltd.] and Proterra batteries,” Lightning CEO Tim Reeser said in a recent interview with FreightWaves. “It's working very well, so we're done with it.”
Nikola said Monday in a filing with the Securities and Exchange Commission that the company had transferred ownership of all of Romeo's tangible and intangible assets to SG Service Co. LLC to deal with Romeo's creditors. Romeo will pay SG $100,000 plus fees and 1% of the proceeds from the sale of assets in the liquidation.
The company hinted at a possible restructuring of Romeo in its 10-Q SEC filing for the first quarter. “Reorganization may involve the sale, licensing, transfer or other disposition of some or all of Romeo's assets and may include initiation of proceedings under the California Assignment for the Benefit of Creditors system or bankruptcy reorganization.
The Delaware rule change will increase Nikola's stock eligibility
Separately, voting closed Wednesday midday before Nikola resumes its virtual annual meeting on Thursday. The company is asking shareholders to agree to a doubling of authorized shares from 800 million to 1.6 billion. The shares would be sold to help Nikola raise cash to pay interest due on a $200 million charge on hedge fund Antara Capital.
The outcome of Proposal 2 is in fact already decided in Nikola's favour, regardless of whether he received a 50 percent majority plus one vote required to pass it. The Delaware House of Representatives on Friday passed amendments to the Delaware Common Companies Act that lower the voting threshold from a majority of outstanding shares to voting by shares.
Delaware Governor John Carney has yet to sign the bill, which the state Senate approved in May. So it's possible Nikola will adjourn Thursday's session a second time if too few votes are cast for Proposal 2. However, the company may call off seeking additional votes because the required legislation has passed both houses of Delaware and has yet to be signed into law.
Nikola has also escaped the risk of being delisted from Nasdaq for the time being. The share price, which had fallen as low as 52 cents, has made a comeback in recent weeks. The stock has traded above $1 for ten consecutive trading days. Nikola shares traded at $1.43 on Wednesday.
Nikola cuts 270 jobs as money to survive is running out
Lion Electric is suing Nikola for terminating the Romeo battery contract
Nikola takes over the ailing Romeo Power to ensure battery supply
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