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In recent months a rivalry has emerged in
the electric vehicle market. A truck company
with a strangely derivative name, Nikola,
entered the stock market. Quickly surging
to an astounding market cap of nearly 30 billion
dollars. Looking around the internet the sentiment
about Nikola, at least among Tesla fans, seems
to be that Nikola is a scam. Nikola is trying
to be Tesla. Trevor Milton is a discount Elon
Musk.
But, while people are busy comparing Nikola
to Tesla, many are missing Nikola’s true
market potential.
While their stock price is partly fueled by
pre-orders for the badger battery electric
pickup truck, something that could directly
compete with Tesla. I’m not going to talk
about this. It’s just another company using
pre-orders for a vehicle that is nowhere near
production ready to fuel hype for the company’s
stock. In that regard, Tesla and Nikola are
pulling from the same playbook. It’s not
interesting. It’s not unique. It’s another
electric truck. Other startups have tried
and failed to compete in the electric battery
vehicle market with no other angle.
What I do find interesting about Nikola, and
what will, in my opinion, ultimately determine
its success, is its hydrogen fuel cell trucks,
and this is what we are going to focus on
in this video.
Hydrogen as a fuel, has a lot of potential,
but has some major hurdles to overcome before
it can enter the market. Hydrogen’s two
biggest challenges to overcome is the price
of production of the fuel itself and the lack
of a distribution network. We will cover these
challenges later in the video, but for now,
let’s focus on hydrogen strength. It’s
specific energy.
Tesla’s average battery has a specific energy,
that’s the energy available for every kilogram
of battery, of 250 watt hours per kilogram.
Hydrogen dominates that figure with an astounding
40,000 watt hours per kilogram. There is no
competition between the two. Hydrogen wins.
This is an impressive advantage alone, but
now factor in the fact battery vehicles do
not get lighter as they expend their energy.
The battery is practically the exact same
weight whether it is fully charged or completely
drained.
This means the vehicle is hauling dead weight
as the batteries lose their charge. This is
not true for hydrogen powered vehicles, which
can exhaust the weight of their fuel to the
atmosphere in the form of harmless water vapour,
as it gets used.
These two factors make hydrogen an extremely
attractive green fuel for the transportation
industry.
Let’s graph the weight of a vehicle as we
increase it’s max range. As we increase
the range of a battery vehicle the weight
curves upwards, whereas the hydrogen vehicle
remains relatively flat.
Now, factor in that trucks are limited in
weight to about forty tonnes to prevent damage
to roads. That means that every extra kilogram
taken up by batteries, is a kilogram not available
for cargo.
So, even though hydrogen is expensive to produce,
there is a sweet spot somewhere along this
range axis where the extra cost in fuel is
regained by the increase in revenue from the
increased cargo capacity. I believe that sweet
spot lies somewhere between about 800 and
1200 kilometre (500-750 mile) range. Below
these ranges, batteries are a more economical
choice.
So, a hydrogen powered truck would appear
to be attractive to a company shipping something
heavy, like crates of beer, from it’s brewery
to distribution hubs around the country. This
was clearly the case for Nikola’s landmark
first customer, Anheuser Busch, the parent
company of Budwieser.
In November 2019, they completed an delivery
using a Nikola Hydrogen fuel cell truck. Using
the Nikola truck to pick up a large cargo
of beer from its St. Louis distillery and
delivering it to a local distribution centre,
where the cargo was transferred to a smaller
battery electric powered BYD truck for further
distribution in the region surrounding the
distribution centre..
They have clearly seen the advantages both
types of vehicles can provide and are using
both to fulfill their mission in reducing
their carbon emissions.
Okay, so Nikola has a clear market that can
benefit from hydrogen vehicles. Long haul
trucking. However, that’s not why I am excited
about this company. Nikola has found a solution
to hydrogen’s next big problem. The lack
of hydrogen refueling infrastructure.
Battery powered vehicles have a premade fuel
production and distribution network in the
electrical grid. Creating a recharging station
for one of these vehicles is as simple as
installing a charging point. Tesla didn’t
need to build power stations or power lines
to enter the market. Nikola does not have
this luxury. They need to build electrolysers
and ensure that customers can get access to
the hydrogen they produce when they need to
refuel. Without this infrastructure in place,
no one is going to buy a hydrogen fuel cell
vehicle. It’s a conundrum. What came first,
the chicken or the egg. The vehicle or the
fuel.
In order to serve the unpredictable travel
patterns of hundreds of thousands of drivers,
refueling stations need to be scattered all
over cities and along major roads. Think about
the logistics of delivering fuel to those
stations. Think about the capital required
to build them all. It’s an insane challenge.
Nikola’s target market makes this problem
much easier to solve.
There are approximately 1.8 million class
8 trucks on the road daily in the United States,
and 25% of them run dedicated routes. Where
trucks simply drive from A to B and back again.
By attacking this market first, Nikola can
slowly build electrolysers along major trucking
routes between cities. Serving trucks along
one route, gaining capital, and then expanding
to new routes. Slowly expanding their network
and servicing these inflexible routes first.
This also eliminates a significant cost associated
with transporting hydrogen via pressurised
vehicles.
By attacking this 25% of the market first
they can raise the capital needed to build
the distribution network, and once the market
has been penetrated, they will become fair
more attractive to the remaining 75% of the
market that run flexible routes.
So, Nikola has identified a viable target
market and is using it to solve hydrogen's
largest logistic challenge. This is exciting.
This could be the kickstart the hydrogen economy
needed.
This is a viable business. However, there
is one giant problem Nikola needs to overcome,
the cost of hydrogen. As we saw earlier, at
a certain range, hydrogen makes a lot of sense.
If Nikola can drive the cost of the fuel down,
it will drive down the minimum viable range
hydrogen can compete in, and thus increase
its target market.
Hydrogen is expensive because of the amount
of electricity required to produce it. Let’s
compare how much energy actually makes it
to the electric motors of a battery and hydrogen
vehicle. Starting with the first step of the
process for each, drawing that electricity
from the grid.
Let’s say we start with 100 kilowatt hours
of energy.
The first step to charge a battery is to invert
the alternating current from the grid to direct
current for the battery, we lose about 5%
of our 100 kilowatt hours in this process.
(95 kilowatt hours)
The first step in producing hydrogen is electrolysis,
an energy intensive process, which will take
about 30% of our 100 kilowatt hours. Leaving
us with about 70 kilowatts hours worth of
hydrogen for the 100 kilowatt hours we put
in. (70 kilowatt hours of hydrogen)
The next step for the battery is to take this
DC power and charge the battery. This takes
about another 5%, as we lose some power to
heat. Leaving us with about 90.25 kilowatt
hours stored in the battery.
For hydrogen the next step is compression.
In order to squeeze enough hydrogen into a
small volume of space, we need to compress
it. This takes about 13% of our energy. Leaving
us with about 60.9 kilowatt hours worth of
hydrogen.
If we needed to transport this hydrogen to
the site of distribution, we would lose more
energy, but this is not a concern for Nikola’s
current business model.
Now we have 90.25 kilowatts hours in the battery
and 60.9 kilowatt hours worth of hydrogen
in the fuel tank. Now we need to convert this
back to current for the motors.
Electric motors require AC power, so once
again we need to convert the DC power in the
battery to AC, with another 5% loss. (86.74
kilowatt hours)
Converting hydrogen to electricity is a little
bit more complicated. For this we need a hydrogen
fuel cell.
A hydrogen fuel cell is actually surprisingly
simple. On one side of the fuel cell hydrogen
flows through channels in contact with the
anode, while oxygen flows through the side
in contact with the cathode. The hydrogen
comes in contact with a platinum catalyst
at the anode which causes the hydrogen to
split into a proton and an electron.
In between the anode and cathode is a proton
exchange membrane, which only allows protons
to pass through it. This forces the electrons
to take an external route to the cathode,
and in turn this creates the electric current
which powers the vehicle.
The electrons and protons then meet with oxygen
at the cathode to form water.
This process is not very efficient and incurs
about 40% power loss, with a large part of
the power being lost to heat during the chemical
reactions. [5]
This leaves us with about 36.5 kilowatt hours
of energy. Fuel cells also produce DC power,
which needs to be converted to AC for the
motors costing another 5%, leaving us with
34.7 kilowatt hours for our motors. In a best
case scenario
So, the final tally for batteries is 86.74
kilowatt hours versus 34.7 kilowatt hours
for hydrogen.
That’s a huge difference.
Nikola will need to make full use of cheap
curtailed solar energy during the day, which
is likely why they chose Arizona as their
head quarter location. Excess solar energy
has been such a massive issue for Arizona’s
neighbour, California. California has been
increasing it’s solar energy generation
incredibly quickly, but has not been building
enough flexible grid balancing measures, like
batteries, water desalination, pumped hydro,
or hydrogen generation, to take the excess
electricity these solar plants create in the
summer.
This excess electricity can overload the grid,
so the grid operators need to find a home
for it. So, California has actually paid it’s
neighbour, Arizona, to take electricity from
them to avoid overloading their grid. [6]
The smart thing would be to disconnect their
solar panels, but they want to pretend that
they are removing carbon dioxide from the
atmosphere by doing this, even though Arizona
just disconnects their own solar panels to
take the pay day.
This is creating an incentive for Arizona
to create new grid loads to put this energy
into, and to boot, they often have their own
over production of solar energy, as they are
the second largest solar energy producer in
the US, after California.
This dynamic is only going to grow as countries
strive to increase their renewable energy
percentages, and so countries will also need
to create a market for flexible grid loads.
Hydrogen is an attractive candidate for this
for several reasons.
Hydrogen has many potential uses. It can be
used for transport, home heating and grid
storage. It can be traded over long distances.
Allowing countries with cheap renewable energy,
like say, North Africa, to create a new energy
economy. One that does not rely on oil. Natural
gas lines can be retrofitted to instead transport
hydrogen. Europe is already planning to do
exactly this in several locations. [7]
This is my renewable technology nerd dream,
but Nikola still needs to overcome the current
fact. Hydrogen is expensive. However, in the
grand scheme of things, Hydrogen is not competing
with batteries in Nikola’s business model.
It’s competing with diesel trucks, and Nikola
has created an interesting bundled leasing
model to guarantee its customers a cost competitive
truck by focusing on the total cost of ownership.
Animation : simple text overlap
The total cost of ownership is primarily driven
by the fuel, maintenance and cost of the truck
itself and Nikola has done it’s research
in juuuust slightly undercutting the total
cost of ownership of diesel trucks.
Using data from the American Transportation
Research Institute, Nikola has estimated the
total cost of ownership for a diesel truck
at 0.97 per mile. With 26 cents going to vehicle
payments, 21 cents going to service and maintenance
and 51 cents going to fuel.
So, Nikola has done the dastardly thing, and
created a lease model that bundles the price
of fuel, maintenance, repairs and the price
of the vehicle at 95 cent per mile. This completely
eliminates the risk of early adoption of this
new technology.
Which is precisely why Nikola is winning orders
with massive corporate firms, and by Nikola’s
pricing calculation each one of these leases
will net the company 173 thousand dollars
in profit. At that profit, 6000 leased trucks
would bring in over 1 billion dollars in profit
every 7 years.
The next piece of the puzzle will be fulfilling
those orders. Ramping up manufacturing is
an incredibly difficult task, and Tesla has
proven that and managed to overcome that by
itself. That is a massive achievement, that
I am not entirely confident can be replicated.
Nikola is making the smart move of partnering
with an existing truck manufacturer to ease
this problem. In September 2019, CMHI Iveco,
one of the world’s largest truck manufacturers,
invested 250 million into Nikola. 100 million
of this was a cash investment, the remaining
150 million came in the form of engineering
and production services, including rights
to license and adapt the design of Iveco’s
S-Way platform. In the very same way Tesla
partnered with Lotus to license it’s chassis
for the Tesla Roadster. This partnership will
give Nikola the head start it needed to begin
production.
Nikola has plans for battery electric vehicles
too. With a 300 mile range truck, the badger
pick up truck and they just received a huge
order for 2,500 battery electric garbage trucks
from one of America’s largest trash collecting
companies, Republic Services.
Nikola, without a doubt, has potential. What
I am excited about is the prospect of Nikola
opening the door for hydrogen, which I earnestly
believe is inevitabilitable as an energy storage
technology.
The emergence of hydrogen as a fuel source
would turn the energy market on its head.
Access to fuel is power, both figuratively
and literally. A country cannot function without
power. It is the first step in building an
economy. Britain's industrial revolution was
fueled by coal. World War 2 was fought with
oil supplies as a focal point. Saudi Arabia
went from desert to global super power thanks
to having the good fortune of having oil buried
beneath their feet. Russia uses its natural
gas supply as a political tool with its neighbours
that need it to keep their electric grid operational.
Hydrogen has the potential to turn this dynamic
on it’s head for many countries.
Any country with a plentiful supply of renewable
energy and water can create its own self sufficient
power system. No more dependence on other
countries for power.
This is primarily why Japan is placing it’s
bets on hydrogen. It is a country with experience
in this political maneuvering. When they attacked
French Indochina in 1940 their oil imports
were cut off by the United States as punishment.
So, Japan, with all the flawed logic of an
expansionist imperialist regime, decided the
logical next step was to attack the United
States in an attempt to prevent it from interfering
with it’s invasion of south east asia, where
they could secure their own oil supplies.
Fuel supply logistics have been the drive
for an immeasurable amount in modern human
history. I made an entire video on the logistics
of fuel supply during the Allied invasion
of Europe through France. A gargantuan task,
when you consider that in the first week of
the invasion over 55 thousand vehicles came
ashore over the beaches of Normandy. You can
learn how the Allies managed to successfully
keep their vehicles fueled in this new episode
which is available exclusively on Nebula.
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