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Romeo Power, Inc. (RMO)
:RMO
Risk Overview Q2, 2022
Risk Distribution
35% Finance & Corporate
21% Production
15% Ability to Sell
14% Tech & Innovation
10% Legal & Regulatory
5% Macro & Political
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Romeo Power Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q2, 2022
Main Risk Category
Finance & Corporate
With 33 Risks
Finance & Corporate
With 33 Risks
Number of Disclosed Risks
94
+12
From last reportS&P 500 Average: 31
94
+12
From last reportS&P 500 Average: 31
Recent Changes
13Risks added
0Risks removed
1Risks changed
Since Jun 2022
13Risks added
0Risks removed
1Risks changed
Since Jun 2022
Number of Risk Changed
1
+1
From last reportS&P 500 Average: 3
1
+1
From last reportS&P 500 Average: 3
See the risk highlights of Romeo Power in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 94
Finance & Corporate
Total Risks: 33/94 (35%)Above Sector Average
Share Price & Shareholder Rights8 | 8.5%
Share Price & Shareholder Rights - Risk 1
Because the market price of Nikola Common Stock may fluctuate, our stockholders cannot be sure of the market value of the stock consideration they will receive in exchange for their shares of Romeo Common Stock in connection with the transactions.Added
Share Price & Shareholder Rights - Risk 2
Our executive officers and directors may have interests that are different from, or in addition to, those of our stockholders generally.Added
Our executive officers and directors may have interests in the Offer and Merger that are different from, or are in addition to, those of our stockholders generally. These interests include direct or indirect ownership of our common stock, restricted stock units, performance stock units, Company warrants and the receipt or potential receipt of change in control or other retention or severance payments in connection with the contemplated transactions.
Share Price & Shareholder Rights - Risk 3
The price of our Common Stock may be volatile.The price of our Common Stock may fluctuate due to a variety of factors, including:
- actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;- the issuance and/or sale of Common Stock or the incurrence of debt to raise cash;- our ability to raise capital adequate to sustain and/or grow our business and support our operations;- mergers and strategic alliances in the industry in which we operate;- market prices and conditions in the industry in which we operate;- changes in government regulation;- potential or actual military conflicts or acts of terrorism;- comments by securities analysts;- price and volume fluctuations in the overall stock market, the level of demand for our stock, including the amount of short interest in our stock;- announcements concerning us or our competitors; and - the general state of the securities markets.
These market and industry factors may materially reduce the market price of our Common Stock, regardless of our operating performance.
Share Price & Shareholder Rights - Risk 4
We may issue additional shares of Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of our Common Stock.As of December 31, 2021, we had warrants outstanding to purchase up to an aggregate of 5,290,243 shares of Common Stock, options outstanding to purchase up to an aggregate of 3,106,349 shares of Common Stock and 3,824,397 shares of Common Stock reserved for issuance pursuant to outstanding stock awards. As of December 31, 2021, we also had the ability to issue up to 14,796,370 shares under our 2020 Equity Incentive Plan. We may also issue additional shares of Common Stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances.
In February 2022, we entered into a Standby Equity Purchase Agreement (the "SEPA") with YA II PN, Ltd. ("Yorkville"), which is an affiliate of Yorkville Advisors. Pursuant to the SEPA, we have the right, subject to certain exceptions, to sell to Yorkville up to $350 million of shares of Common Stock at any time during the two-year term of the agreement. Despite this commitment, and depending on certain restrictions or factors that may apply, there can be no guarantee as to the amount of Common Stock that may be sold, the price at which shares of Common Stock are sold, or the amount of cash that may be raised by the Company as a result of such sales if they occur.
Our issuance of additional shares of Common Stock or other equity securities of equal or senior rank would have the following effects:
- our existing stockholders' proportionate ownership interest will decrease;- the amount of cash available per share, including for payment of dividends in the future, may decrease;- the relative voting strength of each previously outstanding share of Common Stock may be diminished; and - the market price of shares of our Common Stock may decline.
Share Price & Shareholder Rights - Risk 5
Future resales of our Common Stock may cause the market price of our securities to drop significantly, even if our business is doing well.The sale or possibility of sale of shares of Common Stock, including by our officers and directors and certain of our stockholders could have the effect of increasing the volatility in share price of our Common Stock or putting significant downward pressure on the price of our Common Stock. Such sale or the perception that these sales might occur could also impair our ability to raise capital through the sale of additional equity securities.
Share Price & Shareholder Rights - Risk 6
Our Certificate of Incorporation and Amended and Restated Bylaws ("Bylaws") contain anti-takeover provisions that could adversely affect the rights of our stockholders.Our Certificate of Incorporation and Bylaws contain provisions that will limit the ability of others to acquire control of the Company or cause it to engage in change-of-control transactions, including, among other things:
- provisions that authorize our board of directors, without action by our stockholders, to issue (i) additional shares of Common Stock and (ii) preferred stock with preferential rights determined by our board of directors;- provisions that permit only (i) the chairperson of our board, (ii) our chief executive officer, or (iii) a majority of our board of directors to call special meetings of stockholders and therefore do not permit our stockholders to call stockholder meetings; and - provisions that impose advance notice requirements and other requirements and limitations on the ability of stockholders to propose matters for consideration at stockholder meetings.
These provisions could have the effect of depriving our stockholders of an opportunity to sell their Common Stock at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of the Company in a tender offer or similar transaction.
Share Price & Shareholder Rights - Risk 7
Our Certificate of Incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with the Company or our directors, officers, employees or stockholders.Our Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against our directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder's counsel except any action (A) as to which the Court of Chancery in the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or (C) for which the Court of Chancery does not have subject matter jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our Certificate of Incorporation.
This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. We cannot be certain that a court will decide that this provision is either applicable or enforceable, and if a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
Our Certificate of Incorporation provides that the exclusive forum provision is applicable to the fullest extent permitted by applicable law. Notwithstanding the foregoing, the choice of forum provision will not apply to claims brought to enforce any liability or duty created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Share Price & Shareholder Rights - Risk 8
Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our Common Stock.We expect that securities research analysts will establish and publish their own periodic projections for our business. These projections may vary widely and may not accurately predict the results we actually achieve. Our stock price may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on our business downgrades our securities or publishes inaccurate or unfavorable research about our business, the price of our Common Stock could decline. If one or more of these analysts ceases coverage of our business or fails to publish reports on our business regularly, the price of our Common Stock or its trading volume could decline. While we currently have limited research analyst coverage of the Company, if analyst coverage remains limited, declines or is eliminated completely, the trading price and volume for our Common Stock could be adversely affected.
Accounting & Financial Operations8 | 8.5%
Accounting & Financial Operations - Risk 1
We may fail to meet our publicly announced guidance or other expectations about our business, which could cause our stock price to decline.Accounting & Financial Operations - Risk 2
We experience fluctuations in quarterly and annual operating results.Our quarterly and annual operating results have fluctuated in the past and likely will fluctuate in the future. The demand for our products is driven largely by the demand for the end-product applications that are powered by our products. Accordingly, the battery industry for electric transportation is affected by market conditions that are often outside our control. Our results of operations may fluctuate significantly from period-to-period due to a number of factors, including seasonal variations in consumer demand for batteries and their end applications, industry-wide technological changes, supply shortages, the loss of a key customer and the postponement, rescheduling or cancellation of large orders by a key customer. As a result of these factors and other risks discussed in this section, period-to-period comparisons should not be relied upon to predict our future performance.
Accounting & Financial Operations - Risk 3
Failure to fully implement and maintain adequate financial, information technology and management processes and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies, which could lead to errors in our financial reporting and adversely affect our business.As a private company, we were not required to document and test our internal controls over financial reporting, our management was not required to certify the effectiveness of our internal controls and our auditors were not required to opine on the effectiveness of our internal control over financial reporting. As a public company, we are subject to the Sarbanes-Oxley Act which requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.
In addition, we are subject to the SEC's internal control over financial reporting auditor attestation requirements. We might not be able to complete or sustain our evaluation, testing and any required remediation in a timely fashion. In addition, our current controls and any new controls that we develop may become inadequate because of poor design, inadequate systems, inadequate personnel training, and changes in our business, including increased complexity resulting from increased or more complex regulations, and any international expansion. Any failure to implement and maintain effective internal controls over financial reporting could adversely affect the results of assessments by our independent registered public accounting firm and their attestation reports.
Accounting & Financial Operations - Risk 4
We do not expect to declare any dividends in the foreseeable future.We do not anticipate declaring any cash dividends to holders of our Common Stock in the foreseeable future. Consequently, investors may need to rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Accounting & Financial Operations - Risk 5
Our limited operating history makes evaluating our business and future prospects difficult and may increase the risk of your investment.You must consider the risks and difficulties we face as an early-stage company with a limited operating history. If we do not successfully address these risks, our business, prospects, financial condition, and operating results will be materially and adversely harmed. Legacy Romeo was incorporated in June 2014 and has a very limited operating history on which investors can base an evaluation of our business, prospects, financial condition and operating results. We derive, and intend to continue to derive, the majority of our revenues from the sale of our battery packs, modules, and BMS software and services. As of December 31, 2021, we had a backlog of approximately $392.2 million, as adjusted for a change in how battery cells are procured for a major customer. For $306.0 million out of the $392.2 million of backlog related to minimum quantity purchase commitments, if the customers do not follow through on their minimum purchase commitments, we would receive a maximum of $286.5 million under certain make-whole provisions included in these contracts. For the remaining $86.2 million of backlog related to minimum quantity purchase commitments included in these contracts, if the customers do not follow through on their minimum purchase commitments, we would be entitled to seek damages through customary remedies for breach of contract. We define contracted revenue (or "backlog") as revenue expected to be received under our existing customer contracts from sales of battery packs, modules, BMS software and services not yet built and delivered or provided. The difference between our backlog and our minimum revenue that would be received in satisfaction of take or pay minimum order commitments reflects that our backlog does not represent a guarantee that our customers will complete purchases of our products and services in the quantities that we anticipate, and some of our contracts allow our customers to purchase in smaller quantities with certain minimum order penalties. Although we have attempted to de-risk such backlog through minimum value commitments in existing contracts, there are no assurances that we will be able to maintain our current customers or supplier relationships, or secure future business with customers, such as major commercial vehicle OEMs, trucking companies and other fleet owners.
It is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. In the event that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial condition could be materially affected.
Accounting & Financial Operations - Risk 6
Our management has performed an analysis of our ability to continue as a going concern. In addition, our independent registered public accounting firm's report contains an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern.Based on their assessment, our management has raised concerns about our ability to continue as a going concern. In addition, our independent registered public accounting firm's report contains an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern. A "going concern" opinion could impair our ability to finance our operations through the sale and issuance of debt or equity securities or through bank financing. We believe that we will be able to raise additional equity or debt financing in the future; however, any future financing could be dilutive to our current stockholders. Our ability to continue as a going concern will depend on our ability to obtain additional financing. Additional capital may not be available on reasonable terms, or at all. If adequate financing is not available, we would be required to terminate or significantly curtail our operations. If we are unable to achieve these goals, our business would be jeopardized, and we may not be able to continue operations.
Accounting & Financial Operations - Risk 7
We previously identified material weaknesses in our internal control over financial reporting which, although currently remediated, could recur and affect the reliability of our consolidated financial statements and have other adverse consequences.As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley Act"), and the rules and regulations of the applicable listing standards of the New York Stock Exchange (the "NYSE"). The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Effective internal controls are necessary for us to provide reliable financial reports. Nevertheless, all internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, we determined that we had material weaknesses in our internal control over financial reporting. These material weaknesses related to (i) inadequate segregation of duties, including review and approval of journal entries; and (ii) lack of sufficient technical accounting resources. Throughout the year ended December 31, 2021, the Company undertook remediation measures related to the previously disclosed material weaknesses in internal control over financial reporting. We completed the execution of the various remediation measures in the quarter ended December 31, 2021, including testing of the design and concluding on the operating effectiveness of the related controls. We believe that the previously disclosed material weaknesses have been remediated. However, completion of remediation procedures for these material weaknesses does not provide assurance that our modified controls will continue to operate properly and as a result, that our financial statements will be free from material error.
Even though currently remediated, previously existing material weaknesses could recur, or other material weaknesses could arise, and result in material misstatements to our annual or interim consolidated financial statements that might not be prevented or detected on a timely basis or result in delayed filing of required periodic reports. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of the internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Common Stock could be adversely affected and we could become subject to additional litigation, investigations or inquiries by the NYSE, the SEC, or other regulatory authorities, which could require additional financial and management resources.
Accounting & Financial Operations - Risk 8
If the estimates and assumptions we use to determine the size of our total addressable market are inaccurate, our future growth rate may be affected and our business would be harmed.Market estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. Even if the market in which we compete meets our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all. The principal assumptions relating to our market opportunity include: the size of the total addressable market for commercial vehicles in North America and Europe, regulatory developments driven by consumer and societal pressures to reduce CO2, commitments by large logistics and commercial vehicle OEMs to convert to BEV fleets, and our ability to maintain and expand our technological and operational advantage over competitors. Our market opportunity is also based on the assumption that our existing and future offerings will be more attractive to our customers and potential customers than competing products. If these assumptions prove inaccurate, our business, financial condition, and results of operations could be adversely affected.
Debt & Financing5 | 5.3%
Debt & Financing - Risk 1
We are exposed to fluctuations in interest rates and changes in credit risk which could have a material adverse impact on the market value of our investment portfolio.Debt & Financing - Risk 2
We may need to raise additional funds and these funds may not be available to us when we need them. If we cannot raise additional funds when we need them, our business, prospects, financial condition and operating results could be negatively affected.The design, manufacture, sale and servicing of our battery products is capital-intensive. As a company still in the early stages of growth, we are consuming cash on a net basis and may need to raise additional capital to fund our ongoing operations, expand our operations, continue research, development and design efforts, and improve infrastructure. As of December 31, 2021, our cash, cash equivalents and available-for-sale investments were approximately $119.9 million and in February 2022 we used approximately $28.6 million of our cash to purchase BorgWarner's ownership stake in the BorgWarner JV. We may need to raise additional funds in order to fund our ongoing operations, expand our operations, continue research, development and design efforts, and improve infrastructure. To be prepared to continue funding the various key initiatives supporting growth of the business, we are assessing various options associated with our capital structure.
In February 2022, we announced that we had secured a $350 million commitment allowing us, but not obligating us, to sell shares of our Common Stock to an investor for up to a period of two years. Despite this commitment, and depending on certain restrictions or factors that may apply, there can be no guarantee as to the amount of Common Stock that may be sold nor as to the amount of cash that may be raised by the Company as a result of such sales if they occur.
We expect to continue to explore additional options to raise additional funds through the issuance of equity, equity related or debt securities, or through obtaining credit from government or financial institutions. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all. If we cannot raise additional funds when we need them, our financial condition, results of operations, business and prospects could be materially adversely affected.
Debt & Financing - Risk 3
Our insurance coverage strategy may not be adequate to protect us from all business risks.We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. We may not maintain as much insurance coverage as other companies do. Additionally, the policies that we do have may include significant deductibles or self-insured retentions, policy limitations and exclusions, and we cannot be certain that our insurance coverage will be sufficient to cover all future losses or claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which may harm our financial condition and operating results.
Debt & Financing - Risk 4
If the proposed transactions are not consummated, our business and stock price could be adversely affected and we will need to raise substantial additional capital to fund our ongoing operating or other needs.Added
The consummation of the transactions contemplated by the Merger Agreement, including the Offer and the Merger, is subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement as described above. If the Offer and/or the Merger are delayed or otherwise not consummated, we could suffer a number of consequences that may adversely affect our business, results of operations and stock price, including the following:
- if the Offer and the Merger are not completed, the trading price of our common stock may change to the extent that the current trading price of our common stock reflects an assumption that the Offer and the Merger will be completed;- we have incurred and expect to continue to incur significant expenses related to the proposed Transactions. These transaction-related expenses include certain investment banking fees, legal, accounting and other professional fees. Most of these fees must be paid even if the Offer is not consummated;- we could be obligated to pay (or cause to be paid) to Nikola a $3.5 million termination fee in connection with the termination of the Merger Agreement in certain circumstances;- failure of the Offer and the Merger may result in negative publicity and/or a negative impression of us in our customers, prospective customers, the investment community or business community generally. The failure to consummate the Offer and the Merger may be viewed as a poor reflection on our business or prospects;- certain of our suppliers, customers, distributors, and other business, collaboration and strategic partners may seek to change or terminate their relationships with us as a result of the Offer and the Merger; and - the market price of our common stock may decline, particularly to the extent that the current market price reflects a market assumption that the Offer and Merger will be completed.
In addition, if the Offer and/or the Merger is not consummated, we believe that in the future we will need a substantial amount of additional capital, and would expect to have to explore additional funding alternatives, such as equity or debt financings, a potential sale of assets or other strategic financing options, to fund our ongoing operations and strategic and growth objectives. Moreover, to meet potential growth in demand for our products, we will need significant resources for customized production equipment. Further, additional capital may be required to execute on our strategies related to continued expansion into commercial markets, development of new products and technologies, and acquisitions of new or complementary businesses, product lines or technologies. There can be no assurance that if the Offer and/or the Merger were not consummated we would be successful in securing additional capital on a timeframe that coincides with our cash needs, on acceptable terms, or at all. As a result, we could be required to sell assets such as our intellectual property, and/or declare bankruptcy, and we may not be able to remain in business. Conversely, if we were required to raise additional funds by issuing equity, the issuance of additional shares will result in dilution to our current stockholders, and the number of shares available to for issuance and the value of shares of Romeo Common Stock may be insufficient to support cash needs. If additional financing is accomplished by the issuance of additional debt, the service cost, or interest, will reduce net income or increase net loss, and we may also be required to issue warrants to purchase shares of common stock in connection with issuing such debt. If we were to sell any of our assets, we may reduce our overall net income, EBITDA or otherwise alter our financial outlook.
Debt & Financing - Risk 5
If the proposed transactions are not consummated, we may not be able to repay amounts loaned to us by Nikola under a secured financing arrangement.Added
Our ability to repay or to refinance our debt under that certain Loan and Security Agreement, dated as of July 30, 2022, by and among the Company, Romeo Systems, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company and Nikola as the lender, in the event the Offer and the Merger are not consummated depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to repay the debt in which case we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on a variety of factors including the capital markets, our financial condition and the amount of Romeo Common Stock available to issue and sell at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
Corporate Activity and Growth12 | 12.8%
Corporate Activity and Growth - Risk 1
Our management may not be successful in operating a public company.Corporate Activity and Growth - Risk 2
The requirements of being a public company may strain our resources and divert management's attention, and the increases in legal, accounting and compliance expenses may be greater than we anticipate.As a result of operating as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. As a public company, we are subject to the reporting requirements of the Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the NYSE, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls. Compliance with these rules and regulations can be burdensome. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our historical legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations have made it more expensive for us to obtain director and officer liability insurance than we obtained as a private company, and could also make it more difficult for us to attract and retain qualified members of our board of directors as compared to when we were a private company. In addition, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the NYSE, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls. We have hired and may continue to need to hire additional accounting and financial staff, and engage outside consultants, all with appropriate public company experience and technical accounting knowledge and maintain an internal audit function, which will increase our operating expenses. Moreover, we have and could continue to incur additional compensation costs in the event that we decide to pay cash compensation closer to that of other public companies, which would increase our general and administrative expenses and could materially and adversely affect our profitability. We are evaluating these rules and regulations, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Corporate Activity and Growth - Risk 3
If we are unable to grow, or if we fail to manage future growth effectively, our revenue may not increase and we may be unable to implement our business strategy.Our future success depends upon our ability to grow, and if we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet our customers' requirements, all of which could materially adversely affect our business, financial condition and results of operations. To manage our current and anticipated future growth effectively, we must continue to maintain and enhance our infrastructure, financial and accounting systems and controls. We must also attract, train and retain a significant number of engineers, sales and marketing personnel, customer support personnel, professional services personnel, software engineers, technical personnel and management personnel, and the availability of such personnel may be constrained.
As we continue to grow, including from the integration of employees and businesses acquired in connection with previous or future acquisitions, we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our profitability and our ability to retain and recruit qualified personnel who are essential for our future success. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or manufacture high-quality products. Additionally, we may not be able to expand and upgrade our infrastructure to accommodate future growth.
Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations; result in weaknesses in our infrastructure, systems or controls; give rise to operational mistakes, financial losses, loss of productivity or business opportunities; and result in loss of employees and reduced productivity of remaining employees. Our growth is expected to require significant capital expenditures and may divert financial resources from other projects such as the development of new products and services. If we are unable to manage our growth effectively, our expenses may increase more than expected, our revenue may not increase or may grow more slowly than expected and we may be unable to implement our business strategy.
Corporate Activity and Growth - Risk 4
The Company will incur substantial transactions fees and Merger-related costs in connection with the Merger that could adversely affect the business and operations of the Company if the Merger is not completedAdded
The Company expects to incur non-recurring transaction fees, which include legal and advisory fees and substantial Merger-related costs associated with completing the Merger, and which could adversely affect the business operations of the Company if the Merger is not completed.
Corporate Activity and Growth - Risk 5
The Merger Agreement contains provisions that could make it difficult for a third party to acquire us prior to the completion of the Offer and the Merger.Added
The Merger Agreement contains restrictions on our ability to obtain a third-party proposal for an acquisition of the Company. These provisions include our agreement not to (i) solicit, initiate, respond to or take any action to facilitate or encourage any inquires or take any action that would reasonably be expected to lead to a third party proposal to acquire us, (ii) enter into or participate in any discussions with third parties regarding other proposals to acquire us, (iii) furnish any information regarding our business to a third party in connection with a proposal to acquire us, as well as restrictions on our ability to respond to such proposals, subject to fulfillment of certain fiduciary requirements of our board of directors. The Merger Agreement also contains certain termination rights, including, under certain circumstances, a requirement for us to pay (or cause to be paid) to Nikola a termination fee of $3.5 million.
These provisions might discourage an otherwise-interested third party from considering or proposing an acquisition of the Company, even one that may be deemed of greater value to our stockholders than the Offer. Furthermore, even if a third party elects to propose an acquisition, the concept of a termination fee may result in that third-party's offering a lower value to our stockholders than such third party might otherwise have offered.
Corporate Activity and Growth - Risk 6
Until the completion of the Merger or the termination of the Merger Agreement in accordance with its terms, in consideration of the agreements made by the parties in the Merger Agreement, we are prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to us and our stockholders.Added
Until the earlier of the Effective Time and the termination of the Merger Agreement, the Merger Agreement restricts us from taking specified actions without the consent of Nikola, and requires us to generally operate in the ordinary course of business and consistent with past practices and use commercially reasonable efforts to preserve intact our current business organization and maintain our relations and good will with governmental bodies and significant business relations. These restrictions may prevent us from making appropriate changes to the business, retaining our workforce, raising cash, paying dividends or pursuing attractive business opportunities that may arise prior to the completion of the Merger.
Corporate Activity and Growth - Risk 7
The announcement of the Offer and the Merger could negatively impact our future business and operations.Added
Our announcement of having entered into the Merger Agreement and Nikola and Purchaser's commencement of the Offer could cause a material disruption to our business and there can be no assurance that the conditions to the completion of the Offer and the Merger will be satisfied. The Merger Agreement may also be terminated by us or Nikola in certain specified circumstances, including, subject to compliance with the terms of the Merger Agreement, by Nikola in the event our board of directors effects a change of its recommendation to stockholders with respect to the Offer. We are subject to several risks as a result of the announcement of the Merger Agreement and the Offer, including, but not limited to, the following:
- Pursuant to the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to the consummation of the Merger, which restrictions could adversely affect our ability to realize certain of our business strategies or take advantage of certain business opportunities;- The attention of our management may be directed toward the consummation of the Offer, the Merger and related matters, and their focus may be diverted from the day-to-day business operations of the Company, including from other opportunities that might otherwise be beneficial to us;- Current and prospective employees may experience uncertainty regarding their future roles with us (and, if the Offer is completed, Nikola), which might adversely affect our ability to retain, recruit and motivate key personnel and may adversely affect the focus of our employees on development and sales of our products;- Our inability to hire capable employees, given the uncertainty regarding the future of the Company, in order to execute on our continuing business operations;- Our relationships with our customers, partners, manufacturers and suppliers may be disrupted; and - Any of the above matters could adversely affect our stock price or harm our future business or operations.
Corporate Activity and Growth - Risk 8
Our business relationships and those of our subsidiaries has been, and may continue to be, subject to disruption due to uncertainty associated with the Merger, which could have an adverse effect on our results of operations, cash flows and financial position and, following the completion of the Merger, the combined company.Added
Parties with which we and our subsidiaries do business may be uncertain as to the effects on them of the Offer, the Merger and related transactions, including with respect to current or future business relationships with us, our subsidiaries or the combined company. These relationships with customers, partners, manufacturers and suppliers may be subject to disruption. Other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to terminate, change or renegotiate their relationships with us, or consider entering into business relationships with parties other than us, our subsidiaries or the combined company. In fact, we have received notifications from certain customers that they have purported to cancel their contract with us or are re-evaluating their purchasing decisions which could ultimately result in delayed or cancelled orders. Future opportunities will also be difficult to obtain until more certainty about our future as a combined company with Nikola is understood by customers, manufacturers and suppliers. These disruptions could have an adverse effect on our results of operations, cash flows and financial position. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.
Corporate Activity and Growth - Risk 9
The conditions under the Merger Agreement to Nikola's consummation of the Offer and the subsequent Merger may not be satisfied at all or in the anticipated timeframeAdded
On July 30, 2022, we entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement") with Nikola Corporation, a Delaware corporation and the J Purchaser Corp., a Delaware corporation and a wholly owned subsidiary of Nikola ("Purchaser") whereby the Company will be merged into Nikola as the result of an all-stock transaction (the "Transaction). The Merger Agreement provides that, upon the terms and subject to the conditions thereof, as promptly as practicable, Purchaser will commence an exchange offer (the "Offer") to acquire any and all of the issued and outstanding shares of common stock, $0.0001 par value per share, of the Company ("Romeo Common Stock") for 0.1186 (the "Exchange Ratio") shares of Nikola common stock, par value $0.0001 per share ("Nikola Common Stock"). Promptly following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement, Purchaser will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Nikola. The Merger Agreement contemplates that the Merger will be effected pursuant to Section 251(h) of the Delaware General Corporation Law, which permits completion of the Merger without a vote of the holders of Romeo Common Stock upon the acquisition by Purchaser of a majority of the aggregate voting power of Romeo Common Stock. At the Effective Time, each share of Romeo Common Stock, other than the shares accepted for payment in the Offer and certain shares of Romeo Capital Stock held as treasury stock or held or owned by the Company, Nikola, Purchaser or any subsidiary of the Company immediately prior to the Effective Time, will be cancelled and converted into the right to receive a number of shares of Nikola Common Stock equal to the Exchange Ratio.
The Merger Agreement provides that at the Effective Time, (1) each outstanding option (whether or not vested or exercisable) relating to Romeo Common Stock will be cancelled and the holders will not be entitled to receive any consideration, (2) each restricted stock unit and performance stock unit relating to Romeo Common Stock will be assumed by Nikola and converted into a corresponding award with respect to Nikola Common Stock (with the number of shares subject to such award equitably adjusted based on the Exchange Ratio) and (3) each Company warrant exercisable for Romeo Common Stock will be assumed by Nikola and converted into a corresponding warrant denominated in shares of Nikola Common Stock (with the number of warrants and exercise price being adjusted based on the Exchange Ratio).
Under the terms of the Merger Agreement, Purchaser's obligation to accept and pay for shares of Romeo Common Stock that are tendered in the Offer is subject to customary conditions, including, among others, (i) the condition that, prior to the expiration of the Offer, there have been validly tendered and not validly withdrawn a number of shares of Romeo Common Stock that, upon the consummation of the Offer would represent at least a majority of the aggregate voting power of the shares of Romeo Common Stock outstanding immediately after the consummation of the Offer (the "Minimum Condition"); (ii) the absence of legal restraints prohibiting the consummation of the transactions; (iii) the expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iv) the effectiveness of a registration statement on Form S-4 filed by Nikola registering the Nikola Common Stock to be issued in connection with the Offer and the Merger; (v) the approval of shares of Nikola Common Stock for listing on Nasdaq; (vi) the accuracy of the Company's representations and warranties in the Merger Agreement, subject to specified materiality qualifications; (vi) compliance by the Company with its covenants in the Merger Agreement in all material respects; (vii) the absence of a material adverse effect on the financial condition, business, or operations of the Company and its subsidiaries taken as a whole (subject to customary carveouts); (viii) the absence of a bankruptcy of the Company; (ix) delivery of certain customary closing documents (including a customary officer certificate and United States real property interests tax certificate); and (x) no valid termination of the Merger Agreement in accordance with its terms.
We intend to pursue all required approvals in accordance with the Merger Agreement. However, no assurance can be given that the required approvals will be obtained and, even if all such approvals are obtained, no assurance can be given as to the terms, conditions and timing of the approvals or that they will satisfy the terms of the Merger Agreement. In addition, there can be no assurances that our stockholders will tender their shares, or that any or all of the other conditions will be satisfied in the timeframe expected, if at all.
Corporate Activity and Growth - Risk 10
Each of the parties may terminate the Merger Agreement if the Closing of the Offer has not occurred by January 30, 2023.Added
While each party has agreed to use commercially reasonable efforts to take all actions necessary to consummate the Offer, the Merger and make effective the other contemplated transactions, each party has the right to terminate the Merger Agreement if the closing of the Offer has not occurred by January 30, 2023.
Corporate Activity and Growth - Risk 11
If we fail to manage our growth effectively, including failing to attract and integrate qualified personnel, we may not be able to develop, produce, market and sell our battery pack, modules, or BMS software and services successfully.Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We intend to expand our operations significantly. We expect our future expansion to include, among other things:
- expanding the management team;- hiring and training new personnel;- leveraging consultants to assist with company growth and development;- conducting market research and analysis;- controlling expenses and investments in anticipation of expanded operations;- expanding design, production, and service departments;- implementing and enhancing administrative infrastructure, systems and processes; and - expanding our market share in international markets, including Europe and Asia.
Our success depends, in part, on our continuing ability to identify, hire, attract, train and develop other highly qualified personnel, in particular engineers specializing in various disciplines, including battery design and production. Experienced and highly skilled employees are in high demand and competition for these employees can be intense. Our ability to hire, attract and retain them depends on our ability to provide competitive compensation packages. We may not be able to attract, integrate, train, motivate or retain additional highly qualified personnel, and our failure to do so could adversely affect our business, prospects, financial condition and operating results.
Corporate Activity and Growth - Risk 12
We may be unable to successfully expand our operations or manage our growth effectively.The expansion of our manufacturing operations, the development of our marketing and sales organization and our organic growth have all increased and will continue to increase the complexity of our business. Expansion of our operations may place significant demands on our management, finances and other resources. Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion of our accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls. There can be no assurance that significant problems in these areas will not occur. Any failure to expand these areas and implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with the growth of our business could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
Production
Total Risks: 20/94 (21%)Above Sector Average
Manufacturing13 | 13.8%
Manufacturing - Risk 1
We may not be able to accurately plan our production based on our sales contracts, which may result in carrying excess raw material inventory.Manufacturing - Risk 2
As components of EVs, our products as installed in the products of our customers are subject to motor vehicle standards, and the failure of the vehicles to satisfy such mandated safety standards could have a material adverse effect on the demand for our products, our business and our operating results.Our products are used as components in EVs. All vehicles sold must comply with applicable international, federal, and state motor vehicle safety standards, which vary by national and other jurisdictions. In the United States, vehicles that meet or exceed all federally mandated safety standards are certified under the federal regulations. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Failure by our vehicle manufacturing customers to satisfy motor vehicle standards could have a material adverse effect on our business and operating results.
Moreover, we may incur our own significant costs in complying with these regulations. Regulations related to the EV industry and alternative energy industry are currently evolving and we face risks associated with changes to these regulations.
To the extent the laws become more stringent or otherwise change, our components or the vehicles into which they are incorporated may not comply with applicable international, federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results would be adversely affected.
Internationally, there may be laws in jurisdictions we have not yet entered or laws of which we are unaware in jurisdictions we have entered that may restrict our sales or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex and difficult to interpret and may change over time. Continued regulatory limitations and other obstacles interfering with our or our customer's ability to sell products could have a negative and material impact on our business, prospects, financial condition and results of operations.
Manufacturing - Risk 3
Future product recalls could materially adversely affect our business, prospects, financial condition and operating results.Any product recall in the future, whether it involves our or a competitor's product, may result in negative publicity, damage our brand and materially adversely affect our business, prospects, financial condition and operating results. In the future, we may voluntarily or involuntarily, initiate a recall if any of our products are proven to, or possibly could, be defective or noncompliant with applicable federal motor vehicle safety standards. Such recalls involve significant expense and diversion of management attention and other resources, which could adversely affect our brand image, as well as our business, prospects, financial condition and operating results.
Manufacturing - Risk 4
Maintaining our manufacturing operations will require significant capital expenditures, and our inability or failure to maintain our operations would have a material adverse impact on our market share and ability to generate revenue.We released our first commercial vehicle products to the market in 2018, and we plan to begin producing these products at increased scale for existing and new customers. We will be required to incur significant capital expenditures as we grow our production operations to meet customer demand. If we are unable or fail to adequately maintain our manufacturing capacity or quality control processes, we could lose customers, and there could be a material adverse impact on our market share and our ability to generate revenue.
Manufacturing - Risk 5
We rely on complex machinery for our operations, and production involves a significant degree of risk and uncertainty in terms of operational performance and costs.We rely heavily on complex machinery for our operations, and our production will involve a significant degree of uncertainty and risk in terms of operational performance and costs. Our manufacturing facility consists of large-scale machinery combining many components. The manufacturing facility components are likely to suffer unexpected malfunctions from time to time and will depend on repairs and spare parts to resume operations, which may not be available when needed. Unexpected malfunctions of the manufacturing plant components may significantly affect the intended operational efficiency. Operational performance and costs can be difficult to predict and are often influenced by factors outside of our control, such as, but not limited to, environmental hazards and remediation, costs associated with decommissioning of machines, difficulty or delays in obtaining governmental permits, damages or defects in electronic systems, industrial accidents, fire, and seismic activity and natural disasters. Should operational risks materialize, it may result in the personal injury to or death of workers, the loss of production equipment, damage to manufacturing facilities, monetary losses, delays and unanticipated fluctuations in production, environmental damage, administrative fines, increased insurance costs and potential legal liabilities, all which could have a material adverse effect on our business, results of operations, financial condition or prospects.
Manufacturing - Risk 6
We may be negatively impacted by an early obsolescence of our manufacturing equipment.We depreciate the cost of our manufacturing equipment over their expected useful lives. However, product cycles and manufacturing technology change periodically, and we may decide to update our products or manufacturing process more quickly than anticipated. The useful life of any equipment retired early as a result would be shortened, causing the depreciation on such equipment to be accelerated, and our results of operations could be harmed as a result.
Manufacturing - Risk 7
We are currently dependent on a single manufacturing facility. If our facility becomes inoperable, we will be unable to produce our battery products and our business will be harmed.In October 2021, we secured a new leased facility with approximately 215,000 square feet in Cypress, California. While we work to build-out the new facility, our 113,000 square foot headquarters and manufacturing facility is based in Vernon, California, where all our production and R&D activities take place. Our plant and the equipment we use to manufacture our battery modules, packs, and BMS would be costly to replace and could require substantial lead time to replace and qualify for use. Our facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages, or by health epidemics, such as the COVID-19 pandemic, which may render it difficult or impossible for us to manufacture our products for some period of time. Although we maintain insurance for damage to our property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all. The inability to produce our battery products or the backlog that could develop if all or a portion of our manufacturing facilities are inoperable for even a short period of time may result in harm to our reputation, a loss of customers or a material adverse effect on our business, results of operations, financial condition or prospects.
Manufacturing - Risk 8
We are in the process of transitioning from our current manufacturing facility in Vernon, California to a new manufacturing facility in Cypress, California. If there are delays or other problems with this transition, our business might be disrupted and it might adversely affect our results of operations and financial condition.We have secured an extension to the lease of our Vernon, California facility until July 31, 2022 and we are in the process of building-out the Cypress facility and preparing it for occupancy and use. Before the end of the Vernon lease, we will need to move all of our equipment, labs and inventory to Cypress. Even after we vacate the Vernon facility, we will receive additional equipment that will need to be installed for use. Our move to Cypress is a complicated process on an aggressive timeline. There is no assurance that we will be able to complete the transition on time or within a reasonable budget. The move could result in key equipment and labs being offline or unusable for extended periods of time. The inability to produce or test our battery products or the delays resulting from all or a portion of our manufacturing facilities being unavailable for even a short period of time may result in harm to our reputation, a loss of customers or a material adverse effect on our business, results of operations, financial condition or prospects.
Manufacturing - Risk 9
Our efforts to increase the scale and capacity of our manufacturing processes and systems could be disruptive to our operations and adversely affect our results of operations and financial condition.We intend to extend our production capability by investing in automation and infrastructure to substantially increase the manufacturing capacity at our facilities, improve operating efficiency through the use of automation, and reduce delivery time for our products. We have recently expanded our footprint by entering into a new lease relating to approximately 215,000 square feet in Cypress, California and expect to significantly expand our total production capacity over the course of the next year, providing the room for more efficient and effective expansion as we grow. The build out of these expanded manufacturing operations could be disruptive to our operations, divert the attention of management and require significant investments. Our ability to increase our manufacturing capacity is subject to a number of uncertainties inherent in all new manufacturing operations, including ongoing compliance with regulatory requirements, procurement and maintenance of construction, environmental and operational licenses and approvals, delays in construction, potential supply chain constraints, hiring, training and retention of qualified employees and the pace of bringing production equipment and processes online with the capability to manufacture high-quality products at scale. If we experience any issues or delays in meeting our projected timelines for expansion, our projected costs or capital efficiency expectations are not met or the anticipated production capacity for our expansion efforts is not as expected, our business, financial condition, results of operations, cash flows and prospects may be harmed.
Our efforts to increase the scale and capacity of our manufacturing processes and systems may result in temporary constraints upon our ability to produce the quantity of products necessary to fill orders and thereby complete sales in a timely manner. In addition, system upgrades at our manufacturing facilities that impact ordering, production scheduling, manufacturing and other related processes are complex, and could impact or delay production. A prolonged delay in our ability to fill orders on a timely basis could affect customer demand for our products and increase the size of our product inventories, causing future reductions in our manufacturing schedules and adversely affecting our performance. Furthermore, delays in production could harm our brand, business, financial condition, results of operations, cash flows and prospects.
Manufacturing - Risk 10
Lithium-ion battery cells have been observed to catch fire or vent smoke and flame.Our battery packs and modules make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While our battery packs and modules are single cell fault tolerant and, therefore, designed to contain any single cell's release of energy without spreading to neighboring cells, a field or testing failure of our battery packs could occur. This faulty result could subject us to lawsuits, product recalls, or redesign efforts, all of which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive or vehicle applications or any future incident involving lithium-ion cells, such as a vehicle or other fire, even if such incident does not involve vehicles containing our battery packs, could seriously harm our business and reputation.
In addition, we store a significant number of lithium-ion cells at our facilities. Any mishandling of battery cells may cause disruption to the operation of our facility. While we have implemented safety procedures related to the handling of the cells, a safety issue or fire related to the cells could disrupt our operations. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any failure of a competitor's EV or energy storage product may cause indirect adverse publicity for us and our products. Such adverse publicity could negatively affect our brand and harm our business, prospects, financial condition and operating results.
Manufacturing - Risk 11
Manufacturing or use of our products may cause accidents, which could result in significant production interruption, delay or claims for substantial damages.Due to the high energy density inherent in lithium-based batteries, our batteries can pose certain safety risks, including the risk of fire. Our battery modules and packs are single cell fault tolerant, meaning if for some reason a certain battery exhibits a thermal incident, the thermal incident will not propagate to the neighboring cells. Our state-of-the-art testing systems verify all critical specifications to assure everything is fully functional as intended. Nevertheless, accidents causing death or personal injury or property damage, can occur. Although we incorporate safety procedures in the research, development, manufacture and transportation of batteries that are designed to minimize safety risks, the manufacture or use of our products may still cause accidents. Any accident, whether occurring at the manufacturing facilities or from the use of our products, may result in significant production interruption, delays or claims for substantial damages caused by personal injuries or property damage.
Manufacturing - Risk 12
If any of our battery products fails to perform as expected, our ability to develop, market and sell our current products or future technology could be harmed.Our products, such as our battery modules, packs and BMS, could contain defects in design and production that may cause them not to perform as expected or to require repair. We currently have a limited frame of reference by which to evaluate the performance of our products upon which our business prospects depend. There can be no assurance that we will be able to detect and fix any defects in our battery products. We may experience recalls in the future, which could adversely affect our brand and could adversely affect our business, prospects, financial condition and operating results.
Further, our products may not perform consistent with customers' expectations or consistent with other vehicles that may become available. Any product defects or any other failure of our battery modules, packs and software to perform as expected could harm our reputation and result in lost revenue, delivery delays, product recalls, negative publicity, product liability claims and significant warranty and other expenses and could have a material adverse impact on our business, prospects, financial condition and operating results. Additionally, problems and defects experienced by other alternative fuel commercial vehicle companies or electric consumer vehicles could, by association, have a negative impact on public perception and customer demand for our products.
Manufacturing - Risk 13
A change in our product mix may cause our results of operations to differ substantially from the anticipated results in any particular period.Our overall profitability may not meet expectations if our products, customers or geographic mix are substantially different than anticipated. Our profit margins vary among products, customers and geographic markets. Consequently, if our mix of any of these is substantially different from what is anticipated in any particular period, our profitability could be lower than anticipated.
Employment / Personnel3 | 3.2%
Employment / Personnel - Risk 1
Uncertainties associated with the Offer and the Merger may cause a loss of our management personnel and other key employees, which could adversely affect our future business and operations.Changed
Employment / Personnel - Risk 2
Our employees, distributors, consultants and other commercial partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our business, prospects, financial condition and operating results.We are exposed to the risk that our employees, distributors, consultants and other commercial partners may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or other activities that violate laws and regulations, including production standards, U.S. federal and state fraud, abuse, data privacy and security laws, other similar non-U.S. laws or laws that require the true, complete and accurate reporting of financial information or data. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, prospects, financial condition and operating results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our business, prospects, financial condition and operating results.
Employment / Personnel - Risk 3
Our business depends substantially on the continuing efforts of our key executive officers and senior management team and the loss of one or more of these employees could adversely affect our business.Our success depends largely upon the continued services of our key executive officers. These executive officers are "at-will" employees and, therefore, may terminate employment with us at any time with no advance notice. We also rely on our management team in the areas of R&D, marketing, services and general administrative functions. If one or more of our other senior executives are unable or unwilling to continue to work for us in their present positions, we would be significantly disadvantaged. Moreover, if any of our current or former senior executives joins a competitor or forms a competing company, we may lose customers, suppliers, know-how and key personnel. Each of our executive officers has entered into an agreement with the Company that contains confidentiality provisions. The unexpected loss of or failure to retain one or more of our key employees could adversely affect our business.
We do not currently maintain key man life insurance policies with respect to any officer. Any failure by our management team and our employees to perform as expected may have a material adverse effect on our business, prospects, financial condition and operating results.
Supply Chain3 | 3.2%
Supply Chain - Risk 1
Our products might fail to qualify as "domestic origin" for purposes of "Buy America" requirements imposed on the recipients of U.S. Government grants.Supply Chain - Risk 2
We are dependent on our suppliers to fulfill our customers' orders, and if we fail to manage our relationships effectively with, or lose the services of, these suppliers and we cannot substitute suitable alternative suppliers, our operations would be materially adversely affected.We rely on third-party suppliers for the provision and development of many of the key components and materials used in our battery modules and packs, such as battery cells, electrical components, electromechanical components, mechanical components and enclosure materials. The inability of our suppliers to deliver necessary components of our battery products at prices and volumes, performance and specifications acceptable to us could have a material adverse effect on our business, prospects, financial condition and operating results. While we plan to obtain components from multiple sources whenever possible, some of the components used in our vehicles may be purchased by us from a single source. While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for our single source components, we may be unable to do so in the short term (or at all) at prices or quality levels that are favorable to us, which could have a material adverse effect on our business, prospects, financial condition and operating results.
Our third-party suppliers may not be able to meet their product specifications and performance characteristics or our desired specifications, performance and pricing, which would impact our ability to achieve our product specifications and performance characteristics as well. Additionally, our suppliers may be unable to obtain required certifications for their products for which we plan to use or provide warranties that are necessary for our solutions. If we are unable to obtain components and materials used in our battery products from our suppliers or if our suppliers decide to create or supply a competing product, our business could be materially adversely affected.
Supply Chain - Risk 3
Entering into strategic alliances and relying on third-party manufacturing, including from suppliers of components we include in our finished products, exposes us to risks.We have entered into, and may in the future enter into additional, strategic alliances, including joint ventures or minority equity investments with various third parties to further our business. While offering potential benefits, these strategic alliances could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the partners and increased expenses in establishing new strategic alliances, any of which may materially and adversely affect our business. For example, in May 2019, Legacy Romeo collaborated with a subsidiary of BorgWarner to form the BorgWarner JV, but BorgWarner subsequently acquired a competitor of Romeo, which ultimately was a significant factor leading to the dissolution of the BorgWarner JV. As a result, Romeo's proprietary information may now be in the possession of a competitor, and our relationships with certain customers, suppliers and vendors may be impaired by the loss of our association with BorgWarner.
We may have limited ability to monitor or control the actions of these third parties, including competitive activities. To the extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third-party. We could experience delays if our partners do not meet agreed upon timelines or experience capacity constraints, and in turn, we could lose customers and face reputational harm.
Further, there is risk of potential disputes with partners, and we could be affected by adverse publicity related to our partners whether or not such publicity is related to their collaboration with us. Our ability to successfully build a premium brand could also be adversely affected by perceptions about the quality of our partners' products. In addition, because we rely on our partners and third parties to meet our quality standards, there can be no assurance that we will successfully maintain quality standards. Any of the foregoing could adversely affect our business, results of operations, financial condition and prospects.
Costs1 | 1.1%
Costs - Risk 1
Increases in costs, disruption of supply or shortage of any of our battery components, such as cells, electronic and mechanical parts, or raw materials used in the production of such parts could harm our business.Ability to Sell
Total Risks: 14/94 (15%)Above Sector Average
Competition2 | 2.1%
Competition - Risk 1
We operate in an extremely competitive industry and are subject to pricing pressures. Further, many other battery manufacturers have significantly greater resources than we have.Competition - Risk 2
BorgWarner's acquisition of one of our competitors means that a competitor may have access to Romeo's confidential information that existed as of the date that Legacy Romeo acquired BorgWarner's interest in the BorgWarner JV.On June 4, 2021, BorgWarner acquired control of AKASOL AG, a competitor of ours, which ultimately led to the dissolution of the BorgWarner JV. As a result, our confidential information that had been disclosed to BorgWarner before the dissolution of the BorgWarner JV may now be in the possession of a competitor. Although provisions of the IP License that survive its termination state that BorgWarner is obligated to return or destroy all of that confidential information to Legacy Romeo, BorgWarner has thus far refused Romeo's demands to do so to our satisfaction. Any misuse of our confidential information could adversely affect our business, prospects, financial condition and operating results and we may not be able to obtain an appropriate remedy due to contractual limitations of liability.
Demand5 | 5.3%
Demand - Risk 1
Many of our target customers are large commercial vehicle OEM customers and large volume customers, and the failure to obtain such customers, loss of sales to such customers or failure to negotiate acceptable terms in contract renewal negotiations could have an adverse impact on our business.Demand - Risk 2
Our business and future growth depends on the growth in demand for EVs, hybrid vehicles and alternative fuel.As the demand for our products is directly related to the market demand for EVs, a fast-growing e-mobility market will be critical to the success of our business. However, the markets we have currently targeted, primarily today in North America, may not achieve the level of growth we expect during the time frame projected. If the markets for our products fail to achieve our expected level of growth, we may have excess production capacity and may not be able to generate enough revenue to obtain profitability and positive cash flow. If the market for alternative fuel, hybrid vehicles and EVs does not develop at the rate or in the manner or to the extent that we expect, or if critical assumptions that we have made regarding the efficiency of our energy solutions are incorrect or incomplete, our business, prospects, financial condition and operating results could be harmed.
Demand - Risk 3
Our future depends on the needs and success of our customers, as well as the demand for our customers' products or services.The demand for our battery products will ultimately depend on our end-market users. Decisions to purchase our battery packs, modules, and BMS may depend on the performance of the industries of our customers and if demand for output in those industries decreases, then the demand for our products may decrease as well. Demand in these industries is impacted by numerous factors, including, but not limited to, commodity prices, infrastructure spending, consumer spending, customer fleet ICE replacement schedules, travel restrictions, fuel costs, energy demands, municipal spending and government mandates and incentives. Increases or decreases in these variables may significantly impact the demand for our products. If we are unable to predict demand accurately, we may be unable to meet our customers' needs, resulting in the loss of potential sales, or we may produce excess products, resulting in increased inventories and overcapacity in our production facilities, increasing our unit production cost and decreasing our operating margins and cash flow.
Further, our customers' inability to market and sell their products or services successfully, whether from lack of market acceptance or otherwise, could materially and adversely affect our business and prospects because such customers may not order new or additional products from us. If we cannot achieve the expected level of sales, we will not be able to make sufficient profits to offset the expenditures we have incurred to expand our production capacity and otherwise support our business, nor will we be able to grow our business. Accordingly, our business, financial condition, results of operations, cash flow and future success would be materially and adversely affected.
Demand - Risk 4
We are currently dependent on a limited number of customers for a significant portion of our revenues.We are currently dependent on a limited number of customers for a significant portion of our revenue. For the year ended December 31, 2020, BorgWarner JV engineering services revenue accounted for 35% of our total revenue, and Nikola and Hexagon Purus AS accounted for approximately 28% and 27% of our total revenue, respectively. For the year ended December 31, 2021, BorgWarner JV engineering services revenue accounted for 12% of our total revenue, and Nikola and Lighting Systems accounted for approximately 62% and 12% of our total revenue, respectively. Dependence on a few customers could make it difficult to negotiate attractive prices for our products and could expose us to the risk of substantial losses if a single dominant customer stops purchasing our products or if we lose a single dominant customer due to reasons out of our control. Although we anticipate greater customer diversification over time, we expect that a limited number of customers will continue to contribute a significant portion of our sales in the near future. Our ability to maintain close relationships with these top customers is essential to the growth and profitability of our business. If we fail to sell our products to one or more of these top customers in any particular period, or if a large customer purchases fewer of our products, defers orders or fails to place additional orders with us, or if we fail to develop additional major customers, our revenue could decline and our results of operations could be adversely affected. Additionally, our BorgWarner JV engineering services revenues no longer will occur as a result of our purchase of Borg Warner's ownership interest in the BorgWarner JV.
Demand - Risk 5
Changes in public policies affecting the development and more widespread adoption of EVs could affect the demand for our products.Sales to EV producers account for a large portion of our battery sales. If the market for EVs does not develop, demand for our products could be harmed. As a result, our success depends, in part, on laws that affect demand for EVs. For example, laws compelling the reduction of greenhouse gas emissions could create opportunity for increased sales of our batteries for incorporation in EVs. California proposed the world's first zero-emission sales mandate on commercial trucks, including that 40 percent of trucks be zero-emission by 2035 and 100% by 2045. As of July 2021, at least 47 states and the District of Columbia offer incentives to support deployment of EVs or alternative fuel vehicles and supporting infrastructure, either through state legislation or private utility incentives within the state, according to the National Conference on State Legislatures. Fifteen states and the District of Columbia announced a joint memorandum of understanding, committing to a goal of ensuring that 100 percent of all new medium- and heavy-duty vehicle sales be zero emission vehicles by 2050 with an interim target of 30 percent zero-emission vehicle sales by 2030. Eliminating or phasing out such incentives could have the opposite effect. The financial success of our EV producing customers may depend, in part, on their ability to sell tradable regulatory emission credits. Laws that restrict or diminish the value of such credits may lessen our EV producing customers' demand for our batteries.
Sales & Marketing6 | 6.4%
Sales & Marketing - Risk 1
Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and harm our financial results.Sales & Marketing - Risk 2
We may be subject to declining average selling prices, which may harm our revenue and gross profits.EVs, light EVs and energy storage are subject to declines in average selling prices due to rapidly evolving technologies, industry standards and consumer preferences. As a result, our customers may expect us as suppliers to cut our costs and lower the price of our products in order to mitigate the negative impact on their own margins.
We continue to refine and optimize our manufacturing process to provide our top-notch products at competitive prices. Our various designs are optimized and inherently flexible for high-rate manufacturing on the same production lines. Automation of critical assembly steps, coupled with patented component designs, makes our module production process economical, reliable and speedy. Despite our cost-effective production, we expect to face possible market-driven downward pricing pressures in the future. Our revenue and profitability will suffer if we are unable to offset any declines in our average selling prices by developing new or enhanced products with higher selling prices or gross profit margins, increasing our sales volumes or reducing the material costs of our products on a timely basis.
Sales & Marketing - Risk 3
Our customers may fail to fulfill their purchase commitments.Our order backlog currently consists of commitments by a small number of customers to purchase hundreds of millions of dollars of our products over the next several years. Our customers operate in a relatively new industry of commercial vehicles powered by electric batteries and have based their commitments to us on assumptions that sales in their industry will experience considerable growth over the next several years and that they will capture a significant portion of those sales. Further, those customers do not yet have a track record of profitability and may need to rely partially on invested capital to fulfill their commitments to us, and the products of those customers have not yet demonstrated broad market acceptance. If the market for commercial vehicles powered by electric batteries does not grow as expected, if some of our major customers fail to obtain necessary financial backing, or if their products are not widely accepted by the market, those customers may fail to satisfy their minimum purchase commitments to us. In that event, our revenue and profitability could be adversely effected.
Sales & Marketing - Risk 4
We may not be able to engage target customers successfully and to convert such contacts into meaningful orders in the future.Our success, and our ability to increase revenue and operate profitably, depends in part on our ability to identify target customers and convert such contacts into meaningful orders or expand on current customer relationships. In some cases, our battery products have been delivered to certain customers on an early trial deployment basis, where such customers have the ability to evaluate whether our products meet their performance requirements before such customers commit to meaningful orders.
In addition to new customers, our future success depends on whether our current customers are willing to continue using our battery products as well as whether their product lines continue to incorporate our products. As our customers expand their product lines, we hope to be the primary supplier for their fleets. Our products are fully customizable and our R&D efforts strive to create products that are on the cutting edge of technology, but competition in our industry is high. To secure acceptance of our products, we must constantly develop and introduce longer-range and more cost-effective batteries with enhanced functionality and performance to meet evolving industry standards. If we are unable to meet our customers' performance requirements or industry specifications, retain target customers, or convert early trial deployments into meaningful orders, our business, prospects, financial condition and operating results could be materially adversely affected.
Sales & Marketing - Risk 5
Under certain circumstances, our customers can cancel or terminate our contracts.We have ongoing arrangements with our customers and target customers. Some of these arrangements are evidenced by non-binding letters of intent and memoranda of understanding, early-stage agreements that are used for design and development purposes but will require renegotiation at later stages of development or production or master agreements that have yet to be implemented under separately negotiated statements of work, each of which could be terminated or may not materialize into next-stage contracts or long-term contract partnership arrangements. For instance, we have entered into non-binding letters of intent or memoranda of understanding with certain commercial vehicle companies in the United States and Canada. Even when a binding supply agreement is in place, our customers may have the right to cancel or terminate those agreements in certain circumstances, including if we fail to meet our obligations or otherwise breach such agreements. We have been late in meeting some of our customer delivery dates, and at least one of our customers has referenced (but not exercised) their contractual right to terminate our contract for failure to deliver products on a timely basis. We have disputed this customer's allegations and continue to deliver products under the agreement. If these arrangements are terminated or if we are unable to enter into next-stage contracts or long-term operational contracts, our business, prospects, financial condition and operating results may be materially adversely affected.
Sales & Marketing - Risk 6
We may be restricted from growing sales of battery packs for stationary applications.Under the JV Agreement that Legacy Romeo entered into with BorgWarner, BorgWarner will have a right of first refusal to manufacture our stationary products if, within three years of the date that we purchased BorgWarner's interest in the BorgWarner JV, we propose to expand our stationary application business, including by selling stationary applications outside of North America or expanding our manufacture of stationary applications to an extent that causes our annual production capacity to exceed the projected 6.8 gigawatt hour capacity of our existing manufacturing facility. If BorgWarner were to exercise its right to manufacture Legacy Romeo's stationary battery products, BorgWarner would be required to do so via a joint venture with Legacy Romeo on terms that Legacy Romeo and BorgWarner would negotiate at the time of forming such venture.
Brand / Reputation1 | 1.1%
Brand / Reputation - Risk 1
If we are unable to establish and maintain confidence in our long-term business prospects among customers and analysts and within our industry or are subject to negative publicity, then our financial condition, operating results, business prospects and access to capital may suffer materially.Tech & Innovation
Total Risks: 13/94 (14%)Above Sector Average
Innovation / R&D3 | 3.2%
Innovation / R&D - Risk 1
Our failure to keep up with rapid technological changes and evolving industry standards may cause our products to become obsolete and less marketable, resulting in loss of market share to our competitors or a decrease in demand for our battery packs and modules due to substitute products.Innovation / R&D - Risk 2
We may experience significant delays in the design, production and launch of our new products, which could harm our business, prospects, financial condition and operating results.Our R&D team is continually looking to improve our battery packs and modules. Next generation module and third generation BMS are in concept development and prototyping phase, and are not expected to be productionized before 2024 and may occur later or not at all. Any delay in the financing, design, production and launch of our new products could materially damage our brand, business, prospects, financial condition and operating results. There are often delays in the design, production and commercial release of new products, and to the extent we delay the launch of the items identified above, our growth prospects could be adversely affected as we may fail to grow our market share, to keep up with competing products or to satisfy customers' demands or needs. We rely on third-party suppliers for the provision and development of many of the key components and materials used in our battery products, and to the extent they experience any delays, we may need to seek alternative suppliers. If we experience delays by our third-party suppliers, we could experience delays in delivering on our timelines.
Innovation / R&D - Risk 3
If we cannot continue to develop new products in a timely manner and at favorable margins, we may not be able to compete effectively.The battery industry has been notable for the pace of innovations in product life, product design and applied technology. We and our competitors have made and continue to make, investments in R&D with the goal of further innovation. Our ability to create new products and product line extensions and to sustain existing products is affected by whether we can, among other things:
- develop and fund research and technological innovations;- receive and maintain necessary intellectual property protections;- obtain governmental approvals and registrations;- comply with governmental regulations; and - anticipate customer needs and preferences successfully.
The failure to develop and launch successful new products could hinder the growth of our business and any delay in the development or launch of a new product could also compromise our competitive position. If competitors introduce new or enhanced products that significantly outperform ours, or if they develop or apply manufacturing technology that permits them to manufacture at a significantly lower cost relative to ours, we may be unable to compete successfully in the market segments affected by these changes.
Trade Secrets5 | 5.3%
Trade Secrets - Risk 1
Legacy Romeo was obligated to disclose to BorgWarner all of its technology that existed as of the date that Romeo purchased BorgWarner's interest in the BorgWarner JV and may not be able to (i) effectively monitor whether BorgWarner is using such technology in accordance with applicable restrictions (i.e., for non-commercial purposes only) or (ii) obtain adequate compensation for any infringement or misappropriation of our intellectual property rights in such technology.Trade Secrets - Risk 2
BorgWarner could obtain a broad commercial license to Legacy Romeo's intellectual property that existed as of the date that Romeo acquired BorgWarner's interest in the BorgWarner JV in the event of Legacy Romeo's insolvency or breach of any debt covenant.Under the IP License, BorgWarner has a nonexclusive, perpetual, irrevocable, worldwide license to use all of Legacy Romeo's intellectual property that exists as of the date that Romeo purchased BorgWarner's interest in the BorgWarner JV. That license is currently limited to noncommercial uses. However, if Legacy Romeo becomes insolvent, forms an intent to evaluate potential insolvency proceedings, or breaches any debt covenant that results in an event of default under any debt instrument, then BorgWarner would have the option, to the extent that it is valid and enforceable under applicable law, to convert its license from a noncommercial, nonexclusive license to a perpetual, irrevocable, worldwide, exclusive, transferrable and sub-licensable license to commercialize any products.
Although we believe and would argue, if necessary, that BorgWarner's exclusive license described above would not restrict or limit Legacy Romeo's rights to sublicense or otherwise exploit its intellectual property, BorgWarner could argue that, if such exclusive license were triggered, the effect would be to preclude Romeo from exercising some or all of its rights under its intellectual property.
Trade Secrets - Risk 3
The Legacy Romeo intellectual property is arguably pledged to BorgWarner to secure Legacy Romeo's performance of all of its obligations to BorgWarner relating to the BorgWarner JV that survive the dissolution and termination of the IP License.Legacy Romeo has granted a security interest to BorgWarner in Legacy Romeo's intellectual property, to secure its obligations under all of the agreements relating to the formation or operation of the BorgWarner JV. Although the BorgWarner JV has been dissolved and the IP License has been terminated, BorgWarner may take the position that those security interests remain in place to secure performance of the obligations that survive that dissolution and termination, such as BorgWarner's right of first refusal described above to manufacture stationary applications, Legacy Romeo's obligations of confidentiality, and certain obligations relating to the maintenance of our intellectual property. Accordingly, those security interests, if they remain in effect, may impair our ability to raise debt or equity capital.
Trade Secrets - Risk 4
Third-party claims or litigation alleging infringement of patents or infringement or misappropriation of other proprietary rights, or seeking to invalidate our patents may adversely affect our business.Our success depends in part on our avoiding infringement, misappropriation and other violations of the patents and other intellectual property rights of third parties. Claims of infringement, misappropriation, or other violation of patents or other intellectual property rights are often expensive and time-consuming to defend, and if we were unsuccessful in defending such claims we could be forced to stop use of certain technologies and/or pay damages or on-going royalties. It is very difficult to determine whether products and technologies infringe, misappropriate or otherwise violate the patents or other intellectual property rights of third parties.
Some of our competitors may have more resources than we do to pursue claims of infringement, misappropriation or other violations of patents or other intellectual property rights. We may conclude that even if third parties are infringing, misappropriating or otherwise violating our patents or other intellectual property rights, the risk-adjusted costs of bringing claims against such third parties may be too high or otherwise not in the interest of our company. Finally, even if our patent applications are granted, competitors or infringers of such patents could successfully challenge their validity or enforceability.
Trade Secrets - Risk 5
Our patent applications may not result in issued patents and our patents may be invalidated or narrowly interpreted, in which event our competitiveness and value may be undermined.Our key technological innovations, including innovations that are currently commercialized in our products and innovations that we plan to deploy in the future, are described in our issued patents and pending patent applications. There is no assurance that the pending applications will result in issued patents. Further, to the extent that we endeavor to enforce our currently issued patents or any patents that are issued in the future, an alleged infringer is likely to assert that it has not infringed any claim of the applicable patent(s) and that the applicable patent(s) is, in any event, invalid or unenforceable. There can be no assurance that we will overcome those defenses. Further, if one or more of our patents are held to be invalid or unenforceable, or if claims of those patents are interpreted narrowly, or if patents fail to issue from our pending applications, our competitiveness and value may be undermined.
Cyber Security1 | 1.1%
Cyber Security - Risk 1
We previously were the victim of a data breach resulting in publication of proprietary source code.Technology4 | 4.3%
Technology - Risk 1
We rely on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents or security breaches, could harm our ability to operate our business effectively.Technology - Risk 2
Our battery packs and BMS rely on software and hardware that are highly technical, and if these systems contain errors, bugs or vulnerabilities, or if we are unsuccessful in addressing or mitigating technical limitations in our systems, our business could be adversely affected.Our products rely on software and hardware, including software and hardware developed or maintained internally or by third parties, that are highly technical and complex and may require modification and updates over the life of a battery pack. In addition, certain of our products depend on the ability of such software and hardware to store, retrieve, process and manage immense amounts of data. Our software and hardware may contain, errors, bugs or vulnerabilities, and our systems are subject to certain technical limitations that may compromise our ability to meet the objectives. Some errors, bugs or vulnerabilities inherently may be difficult to detect and may only be discovered after the code has been released for external or internal use. Errors, bugs, vulnerabilities, design defects or technical limitations may be found within our software and hardware. Although we attempt to remedy any issues that we observe in our products as effectively and rapidly as possible, such efforts may not be timely, may hamper production, or may not be to the satisfaction of our customers. If we are unable to prevent or effectively remedy errors, bugs, vulnerabilities or defects in our software and hardware, we may suffer damage to our brand, loss of customers, loss of revenue or liability for damages, any of which could adversely affect our business and financial results.
Technology - Risk 3
Inability to leverage vehicle and customer data could impact our software algorithms and impact our R&D efforts.We rely on data collected from the use of fleet vehicles outfitted with our products, including vehicle data and data related to battery usage statistics. We use this data in connection with our software algorithms and the research, development and analysis of our products. Our inability to obtain this data or the necessary rights to use this data could result in delays or otherwise negatively impact our R&D efforts.
Technology - Risk 4
Developments in alternative technology may adversely affect the demand for our battery modules, packs, and BMS for EVs.Significant developments in alternative technologies, such as fuel cell technology, advanced diesel, ethanol or natural gas, or solid state batteries, may materially and adversely affect our business, prospects, financial condition and operating results in ways that we may not currently anticipate. Existing and other battery technologies, fuels or sources of energy may emerge as customers' preferred alternatives to our battery products. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced alternative products, which could result in decreased revenue and a loss of market share to our competitors.
Our R&D efforts may not be sufficient to adapt to changes in alternative fuel and EV technology. As technologies evolve, we plan to upgrade or adapt our energy solutions with the latest technology, in particular lighter weight modules and packs, advanced cooling methods, and advanced battery chemistry, which may also negatively impact the adoption of our other products. However, we may not compete effectively with alternative systems if we are not able to source and integrate the latest technology into our battery products.
Legal & Regulatory
Total Risks: 9/94 (10%)Above Sector Average
Regulation2 | 2.1%
Regulation - Risk 1
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and non-compliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.Regulation - Risk 2
We are subject to governmental export and import control laws and regulations. Our failure to comply with these laws and regulations could have an adverse effect on our business, prospects, financial condition and operating results.Our products and solutions, including components of our products, are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office of Foreign Assets Control. U.S. export control laws and regulations and economic sanctions prohibit the shipment of certain products and services to U.S. embargoed or sanctioned countries, governments and persons. In addition, complying with export control and sanctions regulations for a particular sale may be time-consuming and result in the delay or loss of sales opportunities. Exports of our products and technology must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we, and even some of our employees, could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines, which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers.
In addition, changes in our products or solutions or changes in applicable export or import laws and regulations may create delays in the introduction and sale of our products and solutions in international markets, increase costs due to changes in import and export duties and taxes, prevent our customers from deploying our products and solutions or, in some cases, prevent the export or import of our products and solutions to certain countries, governments or persons altogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons or technologies targeted by such laws and regulations, could also result in decreased use of our products and solutions, decreased ability to export or sell our products and solutions to customers, and decreased ability to import components or parts critical to the manufacture of our products. Any decreased use of our products and solutions, limitation on our ability to export or sell our products and solutions, or limitation on our ability to import components or parts would likely adversely affect our business, prospects, financial condition and operating results.
Litigation & Legal Liabilities3 | 3.2%
Litigation & Legal Liabilities - Risk 1
Government reviews, inquiries, investigations, and actions could harm our business or reputation.Litigation & Legal Liabilities - Risk 2
We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.Product liability claims, even those without merit or those that do not involve our products, could harm our business, prospects, financial condition and operating results. The automobile industry in particular experiences significant product liability claims, and we face inherent risk of exposure to claims in the event that our battery products do not perform or are claimed not to have performed as expected. As is true for other commercial vehicle suppliers, we expect in the future that our battery products will be installed on vehicles that will be involved in crashes resulting in death or personal injury. Additionally, product liability claims that affect our competitors may cause indirect adverse publicity for us and our products.
A successful product liability claim against us could require us to pay a substantial monetary award. While we maintain product liability insurance, we may not be able to cover any substantial monetary judgment against us. Moreover, a product liability claim against us or our competitors could generate substantial negative publicity about our products and business and could have a material adverse effect on our brand, business, prospects, financial condition and operating results.
Litigation & Legal Liabilities - Risk 3
Litigation against us, or the members of our Board of Directors, could prevent or delay the completion of the Merger or result in the payment of damages following completion of the Merger.Added
While we are not aware of any litigation matters brought against us or our Board of Directors related to the Merger, claims may be asserted by purported stockholder plaintiffs related to the Merger. While often such claims would be without merit, the results of any such potential legal proceedings are difficult to predict and could delay or prevent the Merger from becoming effective in a timely manner. Moreover, any litigation could be time consuming and expensive, could divert our management's attention away from its regular business and, if any lawsuit is adversely resolved against us or members of our Board of Directors (each of whom we are required to indemnify pursuant to indemnification agreements), could have a material adverse effect on our financial condition.
One of the conditions to closing of the Merger is that no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger has been issued by any court of competent jurisdiction or other governmental body of competent jurisdiction and there is no law or regulation which has the effect of making the consummation of the Merger illegal. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed and a claimant secures injunctive or other relief prohibiting, delaying or otherwise adversely affecting our and/or Nikola's ability to complete the Merger, then such injunctive or other relief may prevent the Merger from becoming effective in a timely manner or at all.
Taxation & Government Incentives3 | 3.2%
Taxation & Government Incentives - Risk 1
If the Offer and the Merger do not qualify as a tax-free reorganization, the receipt of Nikola Common Stock pursuant to the Offer or Merger could be fully taxable to our stockholdersAdded
Taxation & Government Incentives - Risk 2
The unavailability, reduction or elimination of government and economic incentives due to policy changes or government regulation could have a material adverse effect on our business, prospects, financial condition and operating results.Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived success of the EV industry or other reasons may result in the diminished competitiveness of the alternative fuel and EV industry generally or our battery power solutions. While certain tax credits and other incentives for alternative energy production, alternative fuel and EVs have been available in the past, there is no guarantee these programs will be available in the future or that they will remain at current levels. In particular, our business is affected by federal, state and local tax credits, rebates, grants and other government programs and incentives that promote the use of EVs. Additionally, our business is affected by laws, rules and regulations that require reductions in carbon emissions or the use of renewable fuels, such as the California Low Carbon Fuel Standards and the
Oregon Clean Fuels Program. These programs and regulations, which have the effect of encouraging the demand for EVs, could expire or be repealed or amended for a variety of reasons. For example, parties with an interest in gasoline and diesel, natural gas or other alternative vehicles or vehicle fuels, including lawmakers, regulators, policymakers, environmental or advocacy organizations, OEMs, trade groups, suppliers or other powerful groups, may invest significant time and money in efforts to delay, repeal or otherwise negatively influence regulations and programs that promote battery powered vehicles. Many of these parties have substantially greater resources and influence than we have. Further, changes in federal, state or local political, social or economic conditions, including a lack of legislative focus on these programs and regulations, could result in their modification, delayed adoption or repeal. Any failure to adopt, delay in implementation, expiration, repeal or modification of these programs and regulations, or the adoption of any programs or regulations that encourage the use of other alternative fuels or alternative vehicles over battery power, would reduce the market for batteries as a source of power and harm our operating results, liquidity and financial condition.
Taxation & Government Incentives - Risk 3
Changes in tax laws may materially adversely affect our business, prospects, financial condition and operating results.New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business, prospects, financial condition and operating results. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, U.S. federal tax legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the "Tax Act"), enacted many significant changes to the U.S. tax laws. Future guidance from the IRS with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), has already modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act or any newly enacted federal tax legislation.
Environmental / Social1 | 1.1%
Environmental / Social - Risk 1
Our operations are subject to a variety of environmental, health and safety rules that can bring scrutiny from regulatory agencies and increase our costs.Macro & Political
Total Risks: 5/94 (5%)Above Sector Average
Economy & Political Environment1 | 1.1%
Economy & Political Environment - Risk 1
The uncertainty in global economic conditions could negatively affect our operating results.International Operations1 | 1.1%
International Operations - Risk 1
We will face risks associated with potential international operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business.Natural and Human Disruptions1 | 1.1%
Natural and Human Disruptions - Risk 1
Our operations may be adversely affected by the COVID-19 pandemic, and we face risks that could impact our business.Capital Markets2 | 2.1%
Capital Markets - Risk 1
Our business could be adversely affected by trade tariffs or other trade barriers.Capital Markets - Risk 2
We are exposed to fluctuations in currency exchange rates.We transact business globally. Although transactions primarily are denominated in U.S. Dollars and are related to our cost of revenue, there could be negative impacts if the value of the U.S. Dollar depreciates against foreign currencies to the extent that suppliers and vendors raise prices for materials or services that we purchase. As a result, our operating results may be harmed.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.