Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Down 96% From All-Time Highs, Nikola Looks Completely Boxed in

By Vince MartinStock MarketsNov 22, 2022 10:14AM ET
www.investing.com/analysis/down-96-from-alltime-highs-nikola-looks-completely-boxed-in-200632664
Down 96% From All-Time Highs, Nikola Looks Completely Boxed in
By Vince Martin   |  Nov 22, 2022 10:14AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
NKLA
-2.52%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
TM
+0.74%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
HYMLY
0.00%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Nikola’s original business model has blown up, leaving the company scrambling
  • Cash burn is a significant issue, and the continually falling share price creates a vicious cycle
  • The path even to survival here remains perilously thin; investors should stay far away from NKLA

There’s a key fact to keep in mind about Nikola (NASDAQ:NKLA): its original business model was more financial than technological.

That seems a weird claim to make about a company that sells electric trucks. It seems particularly weird in the context of the Nikola story.

After all, the company’s founder, Trevor Milton, was found guilty of fraud precisely because a jury believed he lied about his company’s technological prowess. Even before that trial, a 2020 activist short report from Hindenburg Research is perhaps best remembered for revealing that Nikola’s truck was a “pusher” (a video that suggested that the truck was being driven on an open road was actually of the truck being rolled down a hill).

The simple story often told with NKLA is that investors bid up the stock because they believed it could be a technological leader in an enormous market. They then sold the stock because the Hindenburg report undercut that belief; only a few months later, the broader electric vehicle sector went into a free fall, taking NKLA down even further.

There’s some truth there, certainly — but it’s not the whole story. In March 2020, when Nikola announced its plan to go public via a merger with SPAC (special purpose acquisition company) VectoIQ, the company itself said its edge was primarily financial.

As Milton himself put it at the time, Nikola could offer a flat, all-in-lease payment to trucking companies that would guarantee total cost of ownership. But Nikola itself didn’t plan to create much of that offering itself. It would contract out for hydrogen supply and use partners to build a nationwide fueling network. Even most of the components going into Nikola trucks would be outsourced.

That case has blown up. The company has dramatically reduced its plans for a nationwide fueling network. Nikola now plans to supply hydrogen itself, but that offering won’t be fully in place until 2026.

The plunge in NKLA stock itself has been a big reason why: without a high stock price, Nikola hasn’t been able to raise the capital needed to execute those ambitious plans.

Even below $3, the problem for NKLA stock is that the company hasn’t found another strategy that can actually work. With the balance sheet stretched, Nikola is about out of time to do so.

The Big Reveal on the Q3 Call

One key edge to Nikola’s original strategy was that it could accelerate the company’s growth. Getting a truck and consistent fueling supply and expert maintenance in one package removed pain points for customers.

But Nikola can’t offer that package: it simply doesn’t have the cash. The company ended Q3 with barely $300 million in unrestricted cash on its balance sheet. It’s burned $550 million through the first three quarters of the year. With the market capitalization now at $1.2 billion, Nikola will have to dilute shareholders simply to survive.

The company, at the same time, is learning the limits of its less expansive plans. On the Q3 conference call, chief financial officer Kim Brady admitted that the company would miss its guidance for deliveries of the BEV (battery-electric vehicle) Tre. A big part of the problem is that customers are worried about the charging infrastructure backing the Tre.

The same problem is likely to arrive on the fuel cell side of the business when commercial production of FCEVs arrives next year. Whatever the power source, customers won’t buy the trucks without charging stations; suppliers won’t build the charging stations without trucks.

Nikola’s edge was, if all went well, its ability to bust through that catch-22. Of course, all hasn’t gone well.

What’s Left Here, Really?

Brady’s disclosure on the Q3 call overshadowed earnings that were better than Wall Street expected. NKLA wound up selling off after the report and closed Monday at an all-time low.

That alone is no reason to buy the stock. Truthfully, there don’t seem like there are good reasons. Nikola’s cash problem is significant. At its current pace, the company will only make it for a couple of more quarters — but that’s not even the whole story. Once the fuel cell trucks start production, losses should actually increase, as the company manufactures initial units at a loss. (There’s no alternative to those losses; it’s simply the nature of start-up auto manufacturing.)

In a best-case scenario, Nikola raises capital by selling stock. But as the stock price declines, so does the amount of capital it can raise in that manner. Nikola almost certainly would have to dilute current shareholders by half simply to raise $1 billion — and $1 billion, even focusing just on truck development, simply is not close to enough.

Even buying time doesn’t mean Nikola succeeds. Again, this was not a company that planned to necessarily compete on quality or technological innovation. Yet in FCEVs, it’s going head to head with Hyundai (OTC:HYMLY) and Toyota (NYSE:TM), two titans of high-tech manufacturing.

The path to success here simply is so narrow. It requires the company to walk the razor’s edge of raising capital through share issuance (without tanking the stock further) and investing that capital behind the business. It requires customers to take the leap into FCEVs or BEVs despite lackluster infrastructure. And it then requires Nikola to outcompete some of the world’s greatest manufacturers to gain market share and grow revenue fast enough to reach profitability.

Yes, Nikola stock is down 96% from its all-time highs. But that’s not what matters. What matters is that Nikola still has a market capitalization of $1.2 billion — and this hardly seems like a business worth that much.

Disclosure: As of this writing, Vince Martin has no positions in any securities mentioned.

Down 96% From All-Time Highs, Nikola Looks Completely Boxed in
 

Related Articles

Down 96% From All-Time Highs, Nikola Looks Completely Boxed in

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (12)
ZS Beck
ZS Beck Nov 23, 2022 7:35PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Trevis M rolled down Nikola's future on the hill that day. If you are a potential buyer, which brand you would choose?Tesla, Volvo, Freightliner, or Nikola? It's not Nikola. If they can buy out all Trevis M shares, 10%... And get rid of him for good. Someone might trust them again. But they have no money
Viren Patel
Viren Patel Nov 22, 2022 4:42PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
you are correct.. it was doomed the day they pushed the truck down a hill using gravity as the engine.
Dave Jones
Dave Jones Nov 22, 2022 3:02PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
0.0
Alejandro Dever
Alejandro Dever Nov 22, 2022 2:06PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Nikola and Tesla are not comparable.
sralang nan
sralang nan Nov 22, 2022 12:53PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Tesla makes profit on tangibles things (their cars). Have you ever seen a Nikola truck on the road ? What you see is what you get. What you don't see is just scam. Just have a look at cryptoccy !
Alex Malmstrom
Alex Malmstrom Nov 22, 2022 12:50PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
So, time to short Tesla to the ground this time round?
Roger Pruzansky
Roger Pruzansky Nov 22, 2022 12:50PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I wouldn't do that
Deva Mistry
Deva Mistry Nov 22, 2022 12:50PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Roger Pruzansky , Tesla should be trading around $50.
sralang nan
sralang nan Nov 22, 2022 12:09PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Nikola is a scam. just surfing on tesla
Vincent Yu
Vincent Yu Nov 22, 2022 11:45AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
what should we do ? buy more or just feel sad ?
Deva Mistry
Deva Mistry Nov 22, 2022 11:45AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You sell so they cover their shorts
David Beckham
David Beckham Nov 22, 2022 11:19AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ok all in
Muhammad Akbar
Muhammad Akbar Nov 22, 2022 11:09AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email