Nel's quick cash from Nikola renegotiation buoys slow quarter for hydrogen electrolyser orders

Norwegian electrolyser maker Nel saw its losses shrink in the first quarter of 2024 — mainly buoyed by NKr96m ($8m) of extra revenue from a renegotiated deal with truck manufacturer Nikola.

Nel had originally signed a supply agreement with Nikola in 2018, which included a firm purchase order of 85MW of electrolysers and refuelling equipment for the latter’s Phoenix Hydrogen Hub in Arizona.

However, in the following years, Nikola sold the Phoenix Hydrogen Hub to Australia’s Fortescue, which reduced the scope to 80MW although the original capacity had already been delivered.

In February, Nel and Nikola cancelled their old supply agreement and agreed to a new deal for 110 stacks and balance-of-stack equipment — which corresponds to 275MW of capacity, although this is not a firm order and therefore not recognised in the order backlog.

However, since the old deal also included refuelling equipment, Nel was compensated with $9m in total from Nikola, although only $8m was recognised this quarter.

This extra, cost-free cash meant that the Norwegian firm saw its net loss for the first quarter of the year shrink to NKr22m ($2m), nearly 77% closer to the black than its NKr94m loss the previous quarter.

“We are happy with the results in the first quarter,” said Nel’s CEO Håkon Volldal. “We do recognise that there are positive one-offs, but as a reminder both internally and externally, it’s possible to celebrate one-offs because we are usually grilled on negative one-offs.”

He added: “When we have these positive one-offs, it’s not because they accidentally happened, it’s also due to hard work by people and clever negotiations and good contracts being landed.”

Fortescue had in the same renegotiation also agreed to pay Nikola $11m for updated warranties and guarantees for the already delivered equipment, as well as compensation for changes in the scope of delivery, although this is yet to be recognised in Nel’s results.

“We do recognise that we need to get more orders, fill the factories and when we do that, the results will also improve significantly,” Volldal added.

Subsidies

However, as with the previous year, developers have hesitated to place orders before subsidies are in hand, with Nel’s order backlog shrinking by 1% from the previous quarter to NKr2.4m.

“There’s a lot of talk about billions of dollars or euros being handed out to hydrogen developers. That’s not true, it hasn’t happened yet — not a single euro almost has been paid out or a dollar,” said Volldal.

“Our customers are waiting for that cash, and until they have that cash, they’re not willing to go ahead and place a firm purchase order with Nel or any other [manufacturer]. And I think that’s what you see in the market. This is not Nel-specific, this is sector-specific, industry-specific,” he added.

However, the CEO noted that the winners for the first subsidy auction under the EU’s European Hydrogen Bank are due to be announced at the end of this month or beginning of May. “That clarity will help certain projects where Nel is involved progress, and that could help us book additional orders.”

Meanwhile, Nel itself is holding off on investment into its planned 4GW factory in Michigan until demand for electrolysers exceeds capacity from its existing facilities in Norway and Connecticut — despite already securing around $170m in federal and state subsidies, half of which is cash incentives.

“Of course, when politicians grant subsidies to companies like Nel, they want to see us take action, but they also realise it’s not always straightforward to move on,” Volldal said when questioned on whether this support comes with a time limit.

“There are some requirements to take certain actions that don’t necessarily imply a lot of capex for Nel: we need to specify what kind of location are we looking at, we need to commit to certain other activities. And you typically have, let’s say, two to three years before you need to make the heavy investments, and that means we have time,” he added.

“These subsidies will not expire immediately. It’s not like if we don’t do anything in ’24, we will lose all of it, but we need to show that we are actively working on the project and we need to make probably some capital commitments during ’25 if we want to keep the subsidies.”

Volldal also hinted that another reason for the delay in taking a final investment decision is that the Michigan gigafactory will also produce next-generation technologies — ie, its pressurised alkaline equipment that is currently undergoing testing, and proton-exchange membrane (PEM) stacks it is co-developing with General Motors — which are still a few years away from the market.

He explained that testing on these new products is expected to last until the end of 2025, with them becoming commercial available in the [20]26 type of time frame, without being too specific”.

Refuelling spin-out

Nel is still considering the spin-out of its refuelling business, with the company optimistic that its pivot to high-capacity filling stations for heavy-duty trucks will help it secure a 15% market share (excluding China).

Nel is currently developing a high-capacity refuelling station capable of dispensing four tonnes a day, or 260kg per hour.

“It’s roughly four trucks per hour, and that’s what you can do on a normal diesel station as well, and this is important because from a commercial point of view, you really need to be at diesel parity when it comes to fuelling trucks like this,” Borin said, adding that Nel’s new filling station equipment would be put on the market next year.

The company is confident that the shutdown of refuelling networks by companies like Shell and Everfuel is not a warning sign for their refuelling equipment business.

“If we look at the specific closings of stations, both in Europe and in the US, it’s very clear to see that these stations are light-duty stations with fairly low capacities,” Borin said. “The market is, as we speak right now, very much focused on transitioning from light-duty and personal car filling to high-capacity and heavy-duty vehicle filling.”