Nikola Corp., the electric vehicle manufacturer, has allocated $61.8 million to address the recent recall of its electric trucks. The company plans to begin returning repaired trucks to customers in the first quarter of next year.

The $61.8 million set aside in third-quarter earnings will cover the estimated costs associated with reengineering, validating, and retrofitting the 209 recalled battery-electric trucks with alternative battery packs. However, Nikola did not disclose the identity of the battery supplier.

Upon further investigation, Nikola discovered that the compromised battery packs extended beyond just the coolant manifold issue. As a result, the company has decided to replace the Romeo packs in existing customer battery-electric trucks with an alternative solution.

Unlike typical safety recalls where the component supplier shares the recall cost, Nikola owned Romeo Power, and therefore, the company is solely responsible for the expenses incurred.

Nikola anticipates spending less than the allocated amount. By selling off the remaining battery-electric trucks in inventory, the company expects to generate $13 million in revenue. Additionally, it estimates receiving $10.7 million from outstanding accounts receivable. Consequently, the total expenditure is expected to be around $38.1 million over the next nine to 12 months. The company has also stated that it will assemble battery-electric trucks as new orders are received.

In June, Nikola liquidated Romeo Power, with its assets sold to Mullen Automotive. Consequently, Nikola reported a loss of $101 million from discontinued operations during the quarter.

Despite the recall, Nikola received an order for 47 battery-electric trucks from one dealer in the third quarter.

During the quarter, Nikola shipped three trucks, repurchased seven, and did not manufacture any new units. Consequently, the company reported negative revenue of $1.7 million. The startup incurred a loss of $425.8 million or 50 cents per share, compared to a loss of $236.2 million or 54 cents per share in the previous year. It is worth noting that the recent doubling of authorized shares resulted in 857.2 million outstanding shares, compared to 438.4 million a year ago.

To cover the expenses associated with the recall and sustain the business until 2024, CFO Stacy Pasterick stated during a call with analysts that Nikola's cash and equivalents improved to $362.8 million, primarily through the sale of new equity.

While grappling with the recall, Nikola has shifted its focus to selling fuel cell electric trucks in California. The company began production of fuel cell electric vehicles (FCEVs) on September 28 and has already secured 277 nonbinding orders from 35 customers.

Nikola believes that it has a strong competitive advantage and significant market share potential with the introduction of the Advanced Clean Fleets Rule, citing the California voucher programs as a key driver. These programs provide substantial price reductions of up to $288,000 for a large fleet and up to $408,000 for a small fleet of 20 or fewer fuel cell trucks.

With the availability of mobile fueling and hydrogen fuel lasting until the first quarter of 2024, Nikola has adjusted its plans for mobile fuelers to conserve costs, as early customers are consuming less fuel than initially projected. Collaboration with infrastructure developer Voltera has led to the planning of eight hydrogen fueling stations in California.

Nikola expects tailwinds from the increasing adoption of zero-emissions vehicles, especially in California, where all new drayage trucks registered with the California Air Resources Board from January 1, 2024, must emit zero tailpipe emissions.

The Tre FCEV Class 8 truck from Nikola currently accounts for 96% of California's Hybrid and Zero-Emission Truck and Bus Voucher Incentives Project (HVIP) for fuel cell trucks. Additionally, the company's battery-electric trucks are featured in 50% of Class 8 vouchers issued. With over 30,000 trucks operating in California ports needing eventual replacement, Nikola sees this as a significant opportunity to gain market share.

As Nikola works towards resolving the electric truck recall, the company remains optimistic about its future prospects, focusing on its fuel cell trucks and their potential impact on the market, particularly in California.