Following a reverse merger with special purpose acquisition company VectoIQ, Nikola Motors (NASDAQ:NKLA) — often considered the Tesla (NASDAQ:TSLA) of trucks — made its debut on Wall Street. And boy, did Nikola stock make quite the debut.
Last week, NKLA stock was trading hands around $35. As of this writing, Nikola stock is trading at $84 — up more than 100% in just a few days.
What’s all the hype about? Is it warranted? Should you chase the rally?
In short, Nikola is a $27 billion next-generation vehicle maker. It’s leading the way in creating a new class of futuristic, zero-emission and cost-effective commercial trucks. The hype is absolutely warranted, as this may be the most exciting company in the market today. Nikola truly has the potential to be worth $100 billion or more one day. But…
I wouldn’t chase the rally here. Let the hype calm down a little. Buy the dip. And ride the secular next-gen vehicle megatrend to huge gains.
What’s All the Hype About?
Nikola is a next-gen commercial truck maker which has the potential to be the Tesla of the truck industry one day.
The company has created two market-leading, zero-emission commercial truck prototypes: a battery electric vehicle (BEV) truck and a hydrogen fuel cell (HFC) truck.
The BEV truck is designed for use today in short-haul transportation, on America’s vast EV charging network that includes 25,000 (and growing) plug-in stations. It’s an ideal solution for trucking and fleet companies looking to electrify and cut costs in short-haul transportation — especially since Nikola’s BEV truck has industry-leading driving range.
But that range is still just 300 miles … versus 750 miles for a diesel truck.
In other words, it’s not an ideal long-haul substitute for diesel trucks.
That’s where the HFC truck comes into play. Because it is built on the hyper-efficient process of turning hydrogen into electricity, this truck has a 750-mile driving range, and is therefore a perfect next-gen solution for long-haul transportation … once the hydrogen charging station network is fleshed out.
Today, there are only 43 hydrogen fueling stations in the U.S. That’s not enough. One of Nikola’s goals is to, much like Tesla did with plug-in stations over the past few years, build out its own network of hydrogen fueling stations and lay the groundwork for enormous disruption.
In addition to all that, Nikola is leveraging its market-leading BEV and HFC truck to launch a pick-up truck called Badger. That’s a very nascent project, but it has huge potential to disrupt the enormous pick-up truck market, which is marching toward $1 trillion in size.
Long story short, then, all the hype about Nikola stock centers around this company modernizing the trucking industry in the 2020s, much like Tesla modernized the passenger car market in the 2010s.
Is Nikola for Real?
The hype surrounding Nikola stock is absolutely for real, because the company’s BEV and HFC trucks represent the future of commercial trucking.
Diesel commercial trucks are expensive, volatile, dirty and old.
They have all-in costs of $1 per mile, which adds up over thousands of miles every year and thousands of trucks. These diesel trucks have exceptionally limited cost visibility due to volatile fuel prices. They account for 39% of the transportation sectors’ greenhouse gas emissions. And most are just pieces of metal — without any integrated software backing.
Nikola’s BEV and HFC trucks are the exact opposite of all of that.
They are cheaper, with all-in costs of about 95 cents per mile (and falling). They are predictable, with limited expense reliance on commodity prices. They’re zero-emission. And they are integrated with advanced software that can enable autonomy.
In other words, Nikola’s next-gen trucks are simply miles better than the status quo. Accordingly, they will disrupt the $600 billion dollar commercial trucking industry over the next several years.
This disruption is already happening.
Nikola’s HFC truck — which is set for production in 2023 — has racked up over 14,000 preorders totaling more than $10 billion from the world’s biggest trucking and fleet companies.
That’s just the tip of the iceberg. Over the next decade, Nikola’s backlog will only grow. So will sales. So will profits. And so will the Nikola stock price.
How High Can Nikola Stock Go?
By my calculations, Nikola could very easily be a $100-billion-plus company one day.
Heavy-duty commercial truck unit sales in North America measure around 400,000 units per year in a good year. Electric vehicle penetration in this market is tiny today, but will rise exponentially over the next decade toward 100%.
That may seem aggressive. But when you back out and see that: 1) electric vehicles are cheaper, 2) pressure to cut carbon emissions is growing and 3) all it takes is a few big trucking companies to really get the ball rolling, then it becomes clear that 100% electrification truly is possible by 2030.
Assuming so, you’re talking about 400,000 next-gen truck sales by 2030. Nikola, as the Tesla of this niche market with very few suppliers, could grab 25% share, for 100,000 truck sales. According to management’s model, annual unit revenue will average around $250,000 in the first few years. That could rise to $300,000 with price hikes against the backdrop of strong demand.
If so, Nikola is marching towards $30 billion in annual sales.
At its lowest over the past decade, TSLA stock traded at 3 times sales. A 3-times sales multiple on $30 billion in 2030 sales implies a future market capitalization for NKLA stock of $90 billion.
From that perspective, I realistically see this company as having a $100-billion-plus market cap one day.
The Bottom Line on NKLA Stock
Make no mistake about it. NKLA stock is a long-term winner. You want this stock in your portfolio for the next five to ten years.
But you don’t want to chase this meteoric rally. Shares are up 150% in about two days … on no real news. In other words, the sun is shining super bright on Nikola stock and all of Wall Street right now.
This won’t remain true forever. Animal spirits on Wall Street will moderate. Nikola hype will fade. NKLA stock will calm down and retreat.
Buy that dip with both hands. And let big-picture, next-gen vehicle tailwinds spark this stock to huge gains in the 2020s.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.