Why Nikola Buying Romeo Power Highlights EV’s Growing Pains

The Terms

Electric heavy truck maker Nikola (NKLA) is taking steps aimed at boosting access to the batteries needed to make its products, while also potentially saving money long term. The company just announced it will acquire California-based battery pack manufacturer Romeo Power (RMO). The $144 million deal will also provide Romeo with $35 million in interim funding so it can keep the doors open until the transaction closes.

Romeo builds battery modules and packs that can be used in large vehicles. These involve lithium batteries that are actually made by separate companies. Nikola says by acquiring Romeo it could save as much as $350 million over the coming four years.

Mutual Benefits

For Romeo, the deal represents a lifeline of sorts. The company went public in 2020 via a SPAC merger in a deal valuing Romeo at $900 million. But at the end of the first quarter the firm had just $66.8 million in cash and over $250 million in losses. Analysts say selling itself may have been one of Romeo’s final options.

Meanwhile, Nikola started shipping its first electric semi-trucks earlier in 2022, and the company anticipates it will deliver between 300 and 500 trucks in total this year. CEO Mark Russell says acquiring Romeo will accelerate development, noting there are strategic and financial benefits.

Needs Batteries

Ome Batteries are one of the biggest issues plaguing the growing EV sector. Specifically, there aren’t enough of them, and the lithium used is expensive. Because they’re in short supply, battery prices have risen even further.

Increased demand for electric vehicles over time should spur more development on the battery side, reducing prices. It’s also possible batteries will become more efficient, potentially pushing the cost down. Technology may eventually make it easier to source new lithium. In the meantime, deals like the one struck between Nikola and Romeo could continue. If nothing else, they show that EV makers are in dire need of batteries and willing to buy entire companies to get their hands on supply.

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