By Michael Elkins
Morgan Stanley initiated coverage of Nikola Corporation (NASDAQ:NKLA) with an Equal-weight rating and a $3.00 price target.
While the company's charging efforts are still relatively smaller in scale, MS analysts believe that NKLA's efforts to develop a more comprehensive approach to hydrogen infrastructure growth ensures a greater level of long-term commercial success, with at least ~5 partnerships to date, NKLA already carries line of sight towards its ~300 metric ton per day target that should be capable of supporting an elevated number of hydrogen fuel cell electric vehicle (FCEV) trucks on the road.
However, despite the overall attractive outlook for ZEV penetration and NKLA's own efforts, the analysts expect competition from both incumbents and new market entrants to remain intense.
Till this point, incumbent OEMs have benefitted from a strong history of investing in and ahead of emissions and technology changes. While Morgan Stanley believes that NKLA's commercialization efforts remain relatively strong, they expect that NKLA's battery-electric vehicle (BEV) truck production may outstrip underlying demand in the near-to-medium term given potential challenges around charging infrastructure maturity. In this context, Morgan Stanley thinks NKLA may be somewhat too early to market for battery electric offerings at a minimum, limiting the benefit of the company's production ramp in the near term.
The analysts wrote in a note, "the bulk of NKLA's long-term value will depend on the rate of ZEV adoption across North American and European heavy duty truck markets. We remain bullish on long-term adoption of these technologies but admittedly see near-term hurdles in the form of a) supply chain challenges and b) a relatively immature infrastructure complex across both battery electric and hydrogen fuel cell. As these challenges are addressed, we remain confident that the demand related to decarbonization efforts at the private fleet and TL level will support an accelerated rate of adoption later in the decade and beyond."
Shares of NKLA are up 1.20% in pre-market trading on Monday.