The hybrid truck manufacturing company Nikola (NASDAQ:NKLA) has only been a publicly traded company for about a month. But investors have high hopes for the company’s future, and have already received a sizable return on their investment. Nikola stock is still up about 17% since going public on June 3.
Many people compare Nikola to companies like Tesla (NASDAQ:TSLA), and believe it will be a disruptive force in the trucking industry. The company’s vehicles combine electric motors with hydrogen fuel cells, a move which Elon Musk called “mind-bogglingly stupid.”
And some analysts are hesitant to jump on board as well. RBC Capital analyst Joseph Spak initiated coverage of the company this week with a hold rating. Spak acknowledged that the company has potential but said it’s “still more of a business plan than a business.”
Let’s look at three pros and three cons of investing in Nikola.
3 Pros of Buying Nikola Stock
Badger truck pickup: CEO Trevor Milton sees a huge opportunity with the company’s Badger electric pickup truck. The company began taking pre-orders for the vehicle on June 29.
The company has two different models of the truck so far. One uses electric batteries and the other uses a hybrid of electric batteries and fuel cell technology. Anyone who pre-orders the vehicle will also receive a priority ticket to the Nikola World Event in December.
Potential to disrupt diesel: The biggest benefit of investing in Nikola stock is that the company does seem to have the potential to disrupt the diesel industry. Other companies have not been able to significantly disrupt the diesel industry, but Nikola can compete on fuel weight and range, and offers lower maintenance costs.
Potential to compete with Tesla: Many Nikola investors believe that the company could be the next Tesla. The company already has a higher valuation than Tesla did at a similar point during its startup phase. And many investors seem to believe in Milton’s vision of the company the same way Tesla investors could get behind Elon Musk.
3 Cons of Buying Nikola Stock
The company has yet to execute: Company leadership has ambitious plans for Nikola, but they have yet to execute on these visions. And the company doesn’t expect to earn any revenue until 2021, so it’ll be awhile before we can see whether their plans come to fruition.
The company is losing money: According to its SEC filing, Nikola has lost $188.5 million since it was founded five years ago. And the company’s sales projections are pretty modest so far. It doesn’t expect to hit $1 billion in revenue until 2023.
And its current forecasts assume that there are no production issues along the way. Tesla serves as pretty strong evidence that at some point, production delays are likely.
Disruption will be difficult: Ultimately, it remains to be seen whether Nikola can actually disrupt the trucking industry. Diesel is still the standard for vehicles traveling long distances, and many fleet owners may not be in a hurry to switch.
Switching to trucks that operate on hydrogen fuel cells also means switching to new operating parts and learning an entirely new way to maintain the trucks. Nikola will have to show that there is a clear financial benefit to making this switch.
Bottom Line
Nikola stock offers a lot of promise, but it’s unclear whether the company will be able to deliver on its potential. At this point, it seems like the risks of investing outweigh any potential rewards.
The company will release its first earnings report as a publicly-traded company in the coming weeks. So this will give investors a good indication of the company’s progress.
Jamie Johnson is a personal finance freelance writer and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial sites, including Credit Karma, Quicken Loans, and Bankrate. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
