Nikola Corp (NASDAQ: NKLA), an electric truck startup, burst onto the Nasdaq scene on June 4, 2020, through a reverse merger with VectoIQ. The initial fervor surrounding the company was undeniable, as its stock debuted at $37.55 per share and skyrocketed to an all-time high of $93.99 on June 9, 2020.
In more recent times, the company faced a fair share of criticism and went through a tough period, with its stock dropping to just $0.52. However, there was a surprising turnaround. Between June 6th, 2023, and August 3rd, 2023, NKLA garnered significant interest and experienced an impressive increase of more than 600% in its stock value.
Once hailed as the “Tesla of trucking,” the euphoria surrounding the stock has since dissipated, leaving investors in a state of disappointment. NKLA’s current trading price hovers just above $1 per share, a steep decline from its previous lofty heights.
The pressing question is whether this dramatic plunge in NKLA’s stock price signifies a promising opportunity for investors or a sinking ship to steer clear of. Can the company still stage a comeback, or is it destined for failure?
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Background:
NKLA’s Turbulent Journey In 2020, a wave of green vehicle manufacturers entered the market through SPAC mergers to capitalize on the electric vehicle (EV) frenzy, and Nikola was among them. Initially, Nikola garnered significant attention and briefly exceeded Ford’s market capitalization due to optimism surrounding EVs. However, this momentum waned after Hindenburg Research released a report that raised concerns about misleading information, leading to the resignation of CEO Trevor Milton. The stock plummeted from its June 9 peak of $93.99 to a low of $13.51 on December 24.
In 2021, Nikola’s stock declined by 38%, and by December, the United States Securities and Exchange Commission (SEC) fined the company $125 million for allegedly making misleading statements about its capabilities, attributed to Milton. Challenges persisted in 2022, resulting in a 79% stock decline and a staggering $784 million net loss. Elevated manufacturing costs and supply bottlenecks, coupled with reduced demand due to surging inflation, took their toll.
What further rattled investors was the company’s “going concern” warning. In its 10-K SEC filing for 2022, Nikola admitted it might not have sufficient funds to stay afloat for a year.
Nonetheless, Nikola experienced a brief resurgence in 2023 due to several favorable developments. The company announced increased deliveries of its battery electric vehicles (BEVs), with retail sales doubling in the second quarter of 2023 to 66 units, and wholesale figures rising from 31 to 45. It also reaffirmed its commitment to deliver its first hydrogen-powered fuel cell electric vehicles (FCEVs) this year. Securing a five-year order for 50 FCEVs from BayoTech, J.B. Hunt Transport’s purchase agreement for 13 Nikola zero-emission Class 8 trucks, and approval of a $42 million grant for constructing six hydrogen stations in Southern California, along with $16.3 million in additional grants, boosted Nikola’s stock from a record low of 52 cents a share on June 6 to $3.71 on August 3 this year.
🐻🔨 Bears beware! Nikola’s $NKLA stock may have been hammered down 13.6% this week, but a ‘hammer chart pattern’ in the last trading session could mean a bullish turn! The bulls are revving their zero-emission engines and Wall Street’s got its eyes on a U-turn! 📈🚚 #NKLA… pic.twitter.com/ZCURs2uu5a
— Hardik Shah (@AIStockSavvy) August 16, 2023
Recent Obstacles in NKLA’s Path
- Disappointing Projections: In its second-quarter report released on August 4, Nikola significantly lowered its 2023 outlook. Revenue projections for 2023 were revised down to $100-130 million from the previous estimate of $140-200 million. Truck delivery expectations were trimmed to 300-400 units from the prior projection of 375-600 units. The gross margin is now expected to be a dismal negative 110%, worse than the earlier estimate of negative 95%. The management attributed this downward adjustment to extended lead times and scaling issues. Furthermore, the company anticipates cash usage of $220 million in the second half of 2023, hinting at a potential need for capital raising by year-end or early 2024.
- Abrupt Leadership Changes: Nikola’s second-quarter report disclosed the abrupt departure of CEO Michael Lohscheller due to family health concerns. Lohscheller played a pivotal role in recent improvements, boosting BEV production, strengthening FCEV efforts, and stabilizing the company’s balance sheet. He was succeeded by Steve Girsky, marking the third CEO change in a year. Additionally, Carey Mendes, responsible for Nikola’s hydrogen branding and fueling station financing, also resigned. Nikola announced Mendes’ departure via an SEC filing without disclosing a successor.
- The Recall Dilemma: In June, several of Nikola’s BEVs caught fire at its Phoenix site, initially prompting suggestions of foul play for potential stock manipulation. The Phoenix Fire Department’s investigation, however, found no evidence of arson. One truck that had previously burned reignited in July. On August 11, Nikola recalled approximately 209 Class 8 Tre BEVs, acknowledging that the fires resulted from a coolant leak within a battery pack and dismissing the notion of foul play. The company’s initial response attributing the fires to “foul play” raised questions about transparency and management decisions, further complicating Nikola’s efforts to regain stability and rebuild trust.
- Delivery Targets at Risk: Nikola also expressed concerns about achieving its annual delivery goal in the wake of the recall. In a regulatory filing on August 21, the company acknowledged the potential for significant expenses to rectify or replace the faulty part. It also voiced worries about potential adverse effects on the brand, business, financials, and cash flows. Nikola has suspended sales of new BEVs entirely, and this recall is likely to hinder its goal of delivering 250 to 300 BEVs for the year, potentially disrupting the planned FCEV rollout.
- Convertible Bond Deal: Nikola’s move to raise funds has raised further concerns among investors. The company plans to issue convertible bonds worth up to $325 million, with the initial closing expected to generate around $125 million. While this will provide an immediate financial boost, it will also lead to share dilution as bonds are converted into shares, potentially impacting the stock’s value.
$NKLA 🚀🚀🚀https://t.co/bCvthTL6GJ pic.twitter.com/OwNtSLYvS0
— TTB (@Tone_Blanco925) August 16, 2023
Worthy Investment?
With NKLA shares currently trading at a deep discount, it may present a buying opportunity for those who believe in the company’s long-term vision. However, investing in Nikola at this stage is speculative in nature.
Anybody watching Nikola Motors (NKLA)?
by u/silentsnooc in wallstreetbets
Nikola’s investment case revolves around the growth potential of the hydrogen fuel economy. While investing in the company now involves a degree of speculation, Nikola’s ambitious long-term goals signal its intent to establish a significant presence in hydrogen refueling infrastructure. By 2026, Nikola aims to have 60 refueling stations, including 20 in California, and produce 300 metric tons of hydrogen daily. This could power 7,500 trucks per day, generating $450-500 million in hydrogen revenues. The company has set targets of 1,000-1,250 Tre BEV and 5,000-6,000 Tre FCEV sales, totaling 6,000-7,250 truck deliveries by 2026. It also aims for a positive gross profit margin in the near term and breakeven to positive EBITDA by 2025.
Nikola (NKLA) comeback
by u/silentsnooc in wallstreetbets
However many investors think these goals are overly ambitious at present. Skepticism surrounds these targets, especially in light of recent management changes, underwhelming short-term prospects, and the challenge of aligning aggressive financial projections with the current challenges facing the company. Rebuilding investor trust and demonstrating tangible progress will take time, and the company’s near-term execution and mid-term targets remain sources of concern. Additionally, the issuance of convertible notes
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