A little over a year ago, Romeo Power Inc. completed the relocation of its headquarters and manufacturing operations from Los Angeles to Orange County to establish a new home base for the then-publicly traded company’s battery-making technology.
That base is no more, and Romeo Power’s operations are no more, marking one of the quickest implosions of an Orange County public company in recent memory.
The 215,000-square-foot property in Cypress was put on the market for sublease a few months ago, as Romeo Power’s former parent company, EV commercial truck maker Nikola Corp. (Nasdaq: NKLA), looked for a new tenant to take over the facility.
The closure came after Nikola opted earlier this year to liquidate Romeo Power’s operations.
2022 Sale
The changes highlighted a slew of struggles for the operations of Romeo Power, which manufactured battery modules, packs and battery management systems for commercial vehicles.
Nikola shed the subsidiary less than a year after acquiring the firm in a deal that was initially reported to be for $144 million in stock. Subsequent regulatory filings said the final price was $78.6 million.
When its move to Cypress was announced in 2021, Romeo’s valuation was closer to $650 million. It went public near the start of 2021, via a reverse merger with a special purpose acquisition company, or SPAC.
Romeo completed the relocation to Cypress in July 2022, and later that month, Phoenix-based Nikola had agreed to acquire the EV battery manufacturer.
The EV truck maker was Romeo’s main customer at the time and was committed to purchasing about $243 million of the company’s battery modules and packs, according to regulatory filings.
The deal was completed by October and the new facility was initially meant to remain operational post-sale, Nikola officials said.
Moving Out
In January 2023, Nikola switched up plans and announced it would be moving all battery manufacturing operations to its own assembly plant in Coolidge, Ariz. The company shut down all local production of Romeo, which employed close to 300 people, during its second quarter ended June.
“A battery engineering presence is expected to remain in California at a separate facility to focus on the development of Nikola’s next-generation battery management system software and modules,” officials said in a March statement.
This summer, Nikola transferred ownership of all Romeo assets to SG Service Co. for liquidation, according to regulatory filings. It reported a loss of about $25 million as a result of the deconsolidation of Romeo’s assets, according to regulatory filings.
The liquidation “forces startups suing Nikola over canceling Romeo orders to get in line for a possible payout of alleged damages from contract breaches,” according to trade industry reports earlier this year.
While shedding assets, Nikola kept a license to use Romeo’s battery technology, according to those reports.
Nikola shares were trading around $1.40 as of this month, for a valuation of $1.4 billion. Its stock price had climbed to $7.75 apiece following news of the Romeo Power acquisition and fell to $3 per share in October 2022 after the deal was completed.
Putting Out Fires
The recent shedding of Romeo assets follows legal issues and reports that the company’s batteries have caused fires in some Nikola trucks.
When it came to moving battery production to Arizona, Chief Financial Officer Stasy Pasterick said it was part of the “many actions to reduce spending” and realign resources at Nikola.
Nikola had intended to manufacture Romeo battery packs for its own trucks under one roof, which includes assembling Bosch fuel cell power modules for its newer hydrogen fuel cell electric trucks.
Further moves included cutting ties to Romeo’s external customers, as Nikola stopped selling Romeo battery packs entirely. Prior customers have been looking to have their contracts fulfilled and to cover any losses because of it.
“We have always made it clear at the time of Romeo acquisition and when we announced it that we do not intend to be in [the] merchant battery tech business,” Nikola’s former Chief Financial Officer Kim Brady told analysts of the disputes. Brady retired in April.
Over 200 battery-electric Nikola trucks were recalled in August due to battery issues.
Nikola has recently struggled with “several thermal incidents with our battery-electric trucks that are running on battery packs received from Romeo Power,” Chief Executive Steve Girsky said in a company-held Q&A.
Necessary repairs include replacing coolant lines due to leaks and pack modules on a case-by-case basis. Deliveries are on hold until the recall is concluded.
These issues are not insurmountable for Nikola but will linger for a while, according to Managing Director and Senior Research Analyst Michael Shlisky from D.A. Davidson.
The analyst firm maintained a “neutral” rating for Nikola and recently lowered its price target from $3 to $2.50.
“It’s a mixed outlook,” Shlisky told the Business Journal. “There are a lot of different risks we have to keep our eye on.”
