Summary
Nikola, the electric vehicle manufacturer, has seen a recent rally in its stock price.
Despite positive developments, the company still faces significant challenges.
NKLA's future is uncertain, especially after shareholders rejected a proposal to issue more stock to raise needed capital.
Tramino
Background
Over the last decade, the investing public has seen many electric car and truck makers come and go. In the veritable gold rush that the government subsidized industry of electric vehicle and battery manufacturing has become, there are no shortages of sky-high promises and underwhelming deliveries.
Enter Nikola $Nikola Corporation(NKLA)$. Founded in 2014, the company was one of the most hyped companies in the EV space. Its main product, Nikola One, was a hydrogen powered semi truck that appeared incredible in all aspects - a true disruptor to the commercial truck industry. However, the public demonstrations of the truck turned out to be less than what met the eye, and in 2022 the company's founder Trevor Milton was found guilty of fraud.
As one would imagine, the stock has had a difficult time over the past few years.
Koyfin
After going public via a SPAC transaction in 2020, the company's share price surged by more than 500%. In the years since, it has fallen almost 80%.
Some might point out that pointing out the flaws in a company that already appears down and out as something of a cheap shot. That is not our intent. Rather, we want to note that despite previous troubles the company has hit a bit of a bright patch recently with the stock surging 150% over the past three months, for reasons that will be discussed shortly.
That being said, in this article we seek to deliver a balanced analysis of where Nikola stands today, and where we think it may go in the future. Let's dive in.
A Ray of Hope?
Despite the rocky start to the company's public life, things have turned around at the company in the sense that Nikola is now actually producing and delivered electric class eight vehicles.
Company Filings
With the completion of Q1, the company will now be judged against year-over-year comps, an important metric for investors and for management's establishment of a positive track record.
An important note is that Nikola produces (or intends to produce) two types of vehicle - BEV (Battery Electric Vehicle) and FCEV (Fuel Cell Electric Vehicle). The former, with a battery, is powered by electricity, while the latter is a hydrogen powered vehicle.
The FCEV model, which the initial hype around the company was built, has yet to be produced, although the company is making progress in the establishment of the infrastructure necessary to begin manufacturing the vehicle. According to the company's latest 10Q, Nikola has secured a parcel of land in Arizona to utilize as a hydrogen fuel hub. The company also had an important organizational announcement in the first quarter:
In January 2023, we announced our new global brand, HYLA, to encompass our energy products for producing, distributing, and dispensing hydrogen to fuel our trucks. Under HYLA, we announced our intention to secure up to 300 metric tons per day of hydrogen supply by 2026 in the U.S. and Canada, which is intended to support the development of our trucks.
The small wins - such as consistent deliveries of BEVs - have been adding up. A recent partnership with BayoTech was announced in July in which orders for 50 FCEV trucks were placed, which caused the stock to rally.
A Tough Road Ahead
However, for all the of the much needed good news, the company still has a proverbial Everest to climb in order to achieve its long-term aims. First and foremost, while the company has been able to somewhat close the gap on sales and cost of sales for its BEVs, the chasm to profitability remains large. In the first quarter the company booked $11 million in sales against $44 million. CFO Stasy Pasterick addressed this head on in the latest conference call, noting that the first quarter results generated "a gross loss of approximately $32.9 million or negative 296% versus nearly negative 700% in Q4."
While the narrowing of negative margin is welcome, the question, of course, is whether or not it is enough. In the first quarter the company saw its cash and cash equivalents decrease by $116 million. This figure is even more stark when one considers that Nikola generated cash of $115 million from financing activities, according to its cash flow statement.
The problem of capital was expressly raised by management on the conference call, where Pasterick noted that "much of this capital availability is dependent upon additional shares being authorized by our stockholders in June". Unfortunately for Nikola, in shareholders rejected the company's plan to issue more stock to raise needed capital.
Perhaps the best summation of Nikola's capital problems was summed up by a recent Barron's article, which succinctly stated:
Wall Street estimates Nikola will use more than $1.1 billion building its business between now and the end of 2025. Nikola ended the first quarter with about $200 million on its books.
The Bottom Line
While we applaud Nikola's management for successfully manufacturing and delivering the company's BEV platform to users, as well as the recent progress the company has made in building out its FCEV infrastructure, we find it difficult to see that the path ahead has become any less fraught than before, especially with the shareholder rejection of the latest stock offering proposal.
While there are other avenues to raise capital available to Nikola, rising interest rates make these alternatives unattractive. We also are waiting to see what the year-over-year comps are for the company when its Q2 results are announced. For Nikola, today, we must remain on the sidelines.
Source: Seeking Alpha
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