Well that didn’t take long. In just three months as a public company, upstart next-gen commercial truck maker Nikola (NASDAQ:NKLA) replaced Tesla (NASDAQ:TSLA) as the market’s biggest battleground stock, with bears and bulls both digging in their heels on Nikola stock.
The bulls think Nikola projects as the Tesla of the commercial trucking space, and that the transportation electrification megatrend will turn Nikola into a global trucking powerhouse. The bears, meanwhile, see Nikola as an unproven, highly speculative company with tons of execution risks, none of which they believe are factored into the NKLA stock price today.
Spoiler alert: The bulls are right.
Why?
Because innovation always wins, and Nikola is one of the most innovative, forward-thinking companies on the planet.
Plus, all that innovation is supported by big strategic and manufacturing partnerships, a huge pre-order book, a balance sheet flush with capital and an engineering team beaming with talent – the sum of which mitigates execution risks and lends visibility to Nikola turning today’s breakthroughs, into tomorrow’s profits.
In other words, Nikola really is Tesla 2.0, and NKLA stock really is a strong buy for long-term investors. Here’s a deeper look.
Don’t Bet Against Innovation
One thing I’ve learned in markets is that a bet against innovation is often a losing bet.
And, at this point in time, a bet against Nikola stock is a bet against innovation, mostly because it conceptually stands as a bet against the idea that commercial trucking fleets all across the globe will be electrified over the next 10-plus years.
Make no mistake about it. That’s exactly what will happen.
Increasing social and legislative pressure on companies to reduce carbon emissions – coupled with rising fuel costs, falling alternative energy costs and improve alternative fuel technology – will promote ubiquitous adoption of next-gen, smart, zero-emission vehicles over the next few decades, on both the consumer and commercial sides of the market.
That means zero-emission cars. Zero-emission trains. Zero-emission boats. And, yes, zero-emission commercial trucks.
In that last auto vertical, Nikola is king, because of innovation. The company has spent, over the past several years, developing a robust technological platform upon which its engineers constructed next-generation, zero-emission trucks which represent the cutting edge of everything.
I’m talking heavy duty commercial trucks with industry-leading driving range and industry-best recharging times. Trucks that are built on premium software that is autonomous ready. Trucks that look sleek, have a futuristic feel, can haul nearly as much as diesel trucks and have lower and more predictable unit costs that diesel trucks.
In other words, Nikola really is the trucking company of the future.
Betting against that feels like a bet against innovation, and that’s a bet that probably won’t win in the long run.
Clear Value Prop
Another thing to like about the Nikola growth narrative is the fact that the company’s trucks have such a clear value prop, that once the company ramps up production, commercial fleet adoption should be relatively seamless and happen very quickly.
Nikola’s hydrogen-electric trucks are zero-emission. They have lower and more predictable unit costs. They have nearly equal hauling capacity. And, they have reached parity with diesel trucks in terms of driving range and recharging time.
In other words, with Nikola’s next-gen trucks, commercial trucking fleets will be gaining a whole lot, without losing anything.
That value prop is as clear as day.
And because it as clear as day, widespread adoption of Nikola’s next-gen vehicles – once the company mass produces them – could be very, very quick.
Strong Fundamentals
Of course, despite the aforementioned positives, NKLA stock bears will continue to hang their hat on the fact that Nikola hasn’t sold a single one of these next-gen trucks, and that accordingly, the growth narrative has huge execution risks.
But it doesn’t really.
Sure, Nikola hasn’t sold a single next-gen heavy duty truck yet. But the company has a long list of strategic investment and manufacturing partners which, in it of itself, lends credibility to this company’s engineering prowess and ability to scale production.
The company also has a huge pre-order book that totals over $10 billion, a balance sheet flush with capital (more than $900 million in cash), a top-tier engineering team which includes several former Tesla engineers and one of the most exciting growth narratives in the world which will inevitably only attract more top-tier talent.
In other words, Nikola hasn’t sold a single vehicle yet, but they have the partners, the customers, the resources, the talent and the energy to sell tens of thousands of trucks per year at scale.
That’s exactly what the company will do.
If (when) they do, NKLA stock will be worth a whole lot more than $45.
NKLA to $200?
By my numbers, NKLA stock could soar to nearly $200 over the next decade.
Here are those numbers.
Each year, commercial fleet companies buy around 2.7 million heavy-duty and manufacturing commercial trucks globally. Within the next decade, I see around 1 in every 3 of those truck sales being a zero-emission truck, for a total of roughly 900,000 hydrogen-electric commercial trucks sold in 2030.
Nikola projects to be the Tesla of this space. In the passenger car market, Tesla has consistently controlled between 10% and 15% of the EV vertical. Assuming similar market share for Nikola at scale, that translates to over 110,000 truck sales in 2030.
Average sales price tag on those trucks will be about $250,000, for total truck revenue of about $28 billion.
The hydrogen and services business will simultaneously ramp as Nikola builds out a robust network of hydrogen charging stations. I think that business grows to about $6 billion in revenue by the end of the decade, implying total revenues of $34 billion.
Management is guiding for 22% gross margins by 2024. I think that number grows to 25% by 2030. Meanwhile, the opex rate will likely compress to industry-average levels around 7%, for total operating margins in the 18% range.
My modeling suggests that under those assumptions ($34 billion in revenue/18% operating margins), Nikola could hit $10 in earnings per share by 2030.
Based on a 20-times forward multiple, that implies a 2029 price target for NKLA stock of $200.
Bottom Line on Nikola Stock
When it comes to Nikola stock, the bull thesis is pretty simple.
Don’t bet against innovation.
Nikola represents the future of the trucking industry, and while the company’s innovation is accompanied by execution risks, those executions are relatively mitigated by strong fundamentals. These include a long list of big strategic partners, a clear pathway to manufacturing ramp, a balance sheet flush with capital and an engineering team beaming with talent.
Could Nikola fail? Sure.
But it’s far more likely that the company succeeds is disrupting the $600-plus billion global trucking market.
And if the company does, NKLA stock will soar over the next five to 10 years.
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, Luke Lango did not hold a position in any of the aforementioned securities.
