Nikola is a social investing home run for Jeff Ubben as he launches new fund

On paper, this trade has already been a home run for Jeff Ubben and ValueAct, turning $154 million of its investors’ money into $1.46 billion in possibly the best example so far in the new stakeholder era that mitigating issues associated with climate change and social inequities are being rewarded with high valuations and excess returns.

• Business: The company specializes in battery-electric and hydrogen trucks and powersports vehicles. It is seeking to provide zero-emissions transportation and infrastructure solutions. Its potential product lineup includes battery-electric and hydrogen-electric class 8 commercial trucks, off-highway vehicles and watercraft.
• Stock Market Value: $25.6 billion ($63.55 per share)

• Percentage Ownership:  5.64%
• Average Cost: $7.54
• Activist Commentary: The ValueAct Spring Fund (“ValueAct SF”) was launched in January 2018 with the mission of identifying and investing in companies whose products, services or technology can unlock environmental or social value, which in turn creates a sustainability premium. It was founded by, and continues to be run by Ubben, who also founded ValueAct Capital in 2000, a $16 billion fund he recently resigned from. However, he will continue to run the ValueAct SF portfolio under his new fund to be launched, Inclusive Capital.  ValueAct SF is building a huge network and has accessed experts in industries such as energy, electrification, water, agriculture, food production, particulates, education and human rights. Just like ValueAct’s constructive, patient investment style, the ValueAct SF will seek to earn the trust of managers, board members and institutional investors. Ubben serves as the portfolio manager and Eva Zlotnicka serves as Vice President. Eva has a pre-existing relationship with ValueAct through their interactions with Morgan Stanley, where she served as a VP and US lead for the Global Sustainability Research Team. At Morgan Stanley, she worked to help address and raise awareness of environmental and social issues both inside and outside of corporations. The Spring Fund will join mature company boards and be part of a strategy shift whereby greater investment against environmental and social goals will drive the value. Or it will work on pure plays that decarbonize power, heat and transport, and be business builders.

Ubben was appointed to the board on June 3.

Nikola is a company focused on the development of next generation smart transportation. It will potentially be a global leader in zero emissions heavy duty trucks and hydrogen infrastructure and the only pure play hydrogen powered vehicle company listed in the U.S.

ValueAct SF learned about Nikola through its investment in Flex Fuel in the incubation phase of ValueAct SF, learning about electrolysis and the uses of hydrogen to clean engines as well as to store energy. Subsequently, ValueAct SF called Nikola Motors in the fall of 2017 to explore their use of hydrogen fuel cell technology and large-scale electrolysis to move to zero carbon for long-haul trucking. They remained in contact with the company until the hydrogen truck was built and then flew to Phoenix to be the first to see the truck and drive it with Trevor Milton, the founder of Nikola.

ValueAct SF characterizes Nikola as a merchant energy storage company. They believe that energy storage will create tremendous value as low-cost daytime solar energy is time shifted to be used by Nikola trucks, and later by other hydrogen trucks; that large scale electrolysis will turn water into green hydrogen long term, providing the end-game solution by avoiding the extractive nature of batteries; and that Nikola’s billions of dollars in heavy-duty, zero emission, hydrogen fuel cell, 100% electric drivetrain heavy duty-trucks is the offtake that amortizes the fuel stations. If so, Nikola has a significant headstart and is likely to be the infrastructure provider to the hydrogen economy.

Nikola’s business model uniquely supplies both the truck and hydrogen fueling infrastructure, solving the fleets’ concerns of where to refuel with green hydrogen at competitive pricing to diesel. It is important to note that the hybrid solution that Nikola has designed includes battery power for start/stop with hydrogen providing the range, while reducing the truck weight by half relative to solely battery-powered alternatives. This solution is easily ported to light trucks, which will have superior ability to haul and climb. Nikola can be the intel inside as both heavy-duty and light truck manufacturers play catch-up with expensive emission regulation.

Nikola will use its investment proceeds to accelerate its portfolio of battery-electric and hydrogen fuel-cell electric vehicles (“FCEVs”) targeting zero emissions globally and to build out a hydrogen station infrastructure to support its trucks. Nikola has more than 14,000 pre-orders representing more than $10 billion in potential revenue and two-and-a-half years of production. The company expects to generate revenue by 2021 with the roll out of its BEV truck, followed by FCEV truck sales starting in 2023 and the initial build out of hydrogen fueling stations to serve Nikola customers’ fleets, such as Anheuser-Busch.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.