Since May 1, shares of Nikola (NASDAQ:NKLA) have surged over 200%. Now to be fair, the entire electric vehicle (EV) market is on a tear. In addition to the surge in Nikola stock, Tesla (NASDAQ:TSLA) stock is up over 98% and Nio (NYSE:NIO) stock has climbed nearly 316% in the same time period.
But while Tesla and Nio are actually producing cars, Nikola does not even have a plant built. My InvestorPlace colleague Wayne Duggan summarized the current state of Nikola stock in his recent article:
The stock is priced as if Nikola has already taken over the entire truck market. This is a company without a single product on the market.
So, before you think this is a hatchet job on Nikola, think again. I think Nikola has an intriguing product with its Badger pickup truck. But in addition to having no product on the market, and no production facility built as of yet, the company has not submitted an earnings report since going public.
And yet the stock has gone into turbo mode. That alone should be enough to give you pause.
Haven’t We Been Here Before?
The bullish case for Nikola is, perhaps ironically, found in Tesla’s success. For the last two years, Tesla has confounded any bearish argument. They could miss on production targets or disappoint on earnings and the stock continued to go up.
In fact, it took the Covid-19 pandemic to slow the stock’s growth down. And that has only seemed to be a temporary bump in the road.
So why should investors get concerned about Nikola? The company has released specifications for its (still prototype) truck that are impressive. And the truck will not only be available as a traditional battery electric vehicle (BEV), but also with hydrogen fuel cells.
And on July 2, the company announced it had sold out 1,000 reservations for the $5,000 Badger reservation package.
But upon hearing this news, Nikola stock took a tumble of more than 13%. And that got my attention.
When Elon Musk Speaks, Markets React
Although Tesla’s CEO Elon Musk is supposed to be having all of his tweets vetted, he apparently threw caution to the wind when he released a tweet in May stating that Tesla’s stock was overvalued.
Now in fairness, Musk’s tweet went out on May 1 and Tesla’s stock is up considerably since then, but I think it’s telling that if the stock was too high at $700, is it still too high at over $1,200 when the company reported declining year-over-year (YoY) automobile deliveries in the second quarter?
With that in mind, let’s go back to Nikola. The company also has a CEO, Trevor Milton, who likes to tease investors through tweets. And that seems to be drawing their ire as they are feeling maybe there’s a little more in common with the two companies than the combination of their company names (i.e. “Nikola Tesla”).
What’s Next for Nikola Stock?
I’ve had no feel for electric vehicle stocks. But I do understand the greater fool theory. With no earnings to look at and no cars currently in production, the stock is moving up on hope. But the problem with hope is that it can turn to despair easily.
Right now, projections are that Nikola will have production capacity for approximately 70,000 trucks per year. The company says its total addressable market is greater than $600 billion. But I agree with Duggan’s assertion that Nikola stock may find itself in a similar position to that of Beyond Meat (NASDAQ:BYND). That is, it could continue to report impressive growth numbers, but the stock has nowhere to go.
Do I believe the narrative for electric vehicles is better than plant-based meat? Sure, if for no other reason than it’s much tougher for competitors to enter the field. But at its current price, and without any cars to deliver for approximately 18 months, Nikola stock seems like it will continue to go higher, until it won’t.
And when that happens, you don’t want to be caught being the greater fool.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.