Nikola Stock Price Forecast : Steer Clear
Nikola Stock Price Forecast : Steer Clear : Nikola Corporation is a startup company based in Arizona that specializes in electric and hydrogen-powered vehicles.
Founded by Trevor Milton in 2014, the company has already gone through a rollercoaster with virtually everything that could go wrong, going wrong. Even when there was some hope that Nikola was heading in the right direction, those hopes quickly evaporated. Mark Russell, the current CEO of Nikola, replaced Milton last September after he resigned. However, Milton still maintains a 20% ownership stake.
Nikola went public through an announcement in March of 2020 through a special purpose acquisition company (SPAC) reverse merger with VectoIQ, a deal that closed in June of 2020. Nikola’s stock has been on a wild ride since the SPAC reverse merger.
From March to June 2020, the stock surged over 500% and peaked at $94/share from the reverse merger and all of the good news involving the Badger, Nikola’s highly anticipated electric pickup truck. Now let’s take a look at Nikola’s share price today. As of April 6th’s close, its share price sits at $13.30, or a jaw-dropping 86% from its 52-week high. All the good things that were supposedly happening for Nikola eventually did not happen. In this article, we will discuss reasons why you should stay away from Nikola.
Source: Yahoo Finance
1. Nikola’s Lack of Profitability
Nikola is not generating any revenue as they are not selling any products. Nikola is considered a pre-revenue startup but claim to be profitable in the future.
When Nikola closed the SPAC reverse merger last June, their CFO Kim Brady projected revenue of $150 million in 2021 and projected revenue of over $3 billion in 2024. In 2020, Nikola reported revenue of $0.1 million, with a majority of revenue coming from solar installation for Milton himself. This is lower than the reported revenue of $0.5 million in 2019. At this rate, I highly doubt that Nikola will report revenue nowhere near the amounts that Nikola’s CFO projected. To take it a step further, I predict that Nikola’s revenue for this year will be less than $1 million.
Nikola’s lack of profitability is already known to its investors. Milton, the founder and former CEO, even touted last June in a CNBC interview that neither he nor his investors care about their lack of profitability and that investors care about the future.
Milton did another interview on CNBC in August to discuss Nikola’s dreadful 2020 Q2 earnings report which saw revenue of only $36,000. During this interview, Milton attempted to restore investor confidence by asking investors to “give us time”, saying that “we are no Tesla and will not provide the same returns like Tesla”. Additionally, he said that “the next four months are going to be the greatest four months in Nikola’s history ever.” If anything, those four months were the worst in Nikola’s history. Later in this article, we describe the events that broke the tipping point for Nikola.
2. Milton & Insider Stock Sales
Another red flag for Nikola is the continuous sale by insiders, especially by the founder himself, a move seen as a lack of confidence by investors. Milton has a history of selling shares in massive amounts quite frequently. Just this past Monday, it was reported that Milton sold roughly 3.5 million shares of Nikola stock for $49 million. He still remains as Nikola’s largest shareholder with 79 million shares with a current value of approximately $1.1 billion.
His last stock sale was in December when he sold 3.34 million shares out of the 91.6 million he could have sold due to the expiration of an insider lockup period. Additionally, other insiders had the opportunity to sell 70 million shares collectively during that insider lockup period. With 361 million total shares outstanding on that expiration day, the insider shares that were eligible to be traded on that day represented 46% of Nikola’s float. It is unknown how many insider shares were sold that day but 71 million shares were traded on expiration day of the insider lockup period.
3. Failed Deal with General Motors
Last September, General Motors (GM) and Nikola announced a partnership in which Nikola would be able to use GM’s battery system and fuel cell technology to build their vehicles. In exchange, GM would receive an 11% equity stake in Nikola and build the highly anticipated Nikola Badger for them. This potential deal, expected to close later that month, seemed like it would be a gamechanger for Nikola.
However, two days after the partnership was announced, short-seller Hindenburg Research published a 67-page scathing report attacking Nikola. Hindenburg alleged that Milton misrepresented investors about Nikola through lies and fabrication about its products. Days after Hindenburg’s attack, Milton came out with his statement denying the allegations. Milton eventually resigned as CEO of Nikola approximately one week before the anticipated closing date of the deal and deleted his Twitter account, which had tweets containing many claims that weren’t true.
With days left until the anticipated closing date, GM felt less confident about the deal but were determined to close it. Initially, GM and Nikola continued discussions after the anticipated closing date in hopes of reaching a finalized resolution. However, by the end of November, GM announced that the deal was off and that the Badger would no longer be manufactured by them. However, a smaller deal was approved but made GM a customer, rather than a partner. This amended deal allowed the two companies to work together to incorporate GM’s fuel cell technology into Nikola’s Class 7 and Class 8 zero-emission semi trucks.
There is very little reason to believe that this startup will ever be profitable in the future unless something incredible happens. Nikola has deceived investors thanks to Milton’s false claims. Although Milton no longer runs Nikola, the damage has likely been done. There are far better electric vehicle stocks that are either profitable or have the potential to be profitable in the future.
Nikola Stock Price Forecast : Steer Clear
Written by Jay Devon
Edited by Jimei Shen, Michael Ding, Jack Argiro, Calvin Ma & Alexander Fleiss