Nikola (NASDAQ:NKLA) is one of the most compelling story stocks of 2020. In fact, you could say timing is everything. Nikola stock went public shortly after the pandemic hit, putting the company on the radar of a network of day traders who bought into its zero-emission future.
This was despite the fact that Nikola had a near zero-revenue present.
I cautioned investors to not be the greater fool when it came to Nikola stock. And it seemed that investors started to come to grips with their irrational exuberance. However, in August, investors are bidding the stock back up again. This is despite the fact that the company posted earnings that were inconclusive and not very informative.
In other words, they didn’t say anything we didn’t know. InvestorPlace contributor Luke Lango says the case for Nikola is clear as day. I understand Lango’s premise, but I don’t agree it’s as clear as it looks.
To me, Nikola’s future looks enticing, but complicated. And it’s why I’m not a fan of the stock at this time.
Revenue is On the Way
Nikola is planning on launching its battery electric trucks in 2021. It will start with its Tre Class 8 BEV. The company is also introducing its battery electric pickup truck, the Badger. But as InvestorPlace contributor Chris Lau pointed out, enthusiasm for the Badger doesn’t mean revenue. Lau mentioned that although Nikola received over 89,000 sign-ups, it did not collect any deposits.
This doesn’t mean Nikola won’t get revenue. In fact, part of my concern is that between the Tre Class 8, the Badger and the fleet of battery electric garbage trucks it’s delivering to Republic Services (NYSE:RSG), the company will have revenue to report.
And once the company has electric vehicle (EV) revenue coming through the door, will the company still be the hydrogen evangelist it is today?
For me, it has to be. As an EV company, even in a nascent segment like commercial trucks, Nikola is far less interesting to me. But as the company that can make hydrogen fuel cell technology a reality? That’s a different story. But that’s where it gets complicated.
Betting On a Hydrogen Future
Nikola executive chairman Trevor Milton has said, “Hydrogen is a key to everything with Nikola. It’s our ability to separate ourselves from our competitors.”
Nikola is not without a story. Anheuser-Busch InBev (NYSE:BEV) has ordered 800 fuel cell trucks to help Nikola prove the concept. But those trucks won’t be available until 2023.
Lango made a well-reasoned argument for Nikola based on the stock’s commitment to innovation. Lango’s article concludes with the notion that shares of Nikola stock could climb as high as $200 by 2029.
However, hesitancy to invest in Nikola at this time is not a bet against innovation. It’s a bet for common sense. I understand that if you wait for Nikola to prove its premise, you’ll be chasing the stock upwards.
But the company posted very little in the revenue department. On the earnings call, Nicola management spoke about partnerships. These could very well move the stock higher. But the company didn’t provide much “color” (as they like to say) about the partnerships.
The company did put itself on the hook for some deliverables at the end of this year. These included announcement of a “significant commercial agreement” for zero-emission BV trucks, the announcement of an OEM partner for the Badger, the announcement of a hydrogen station collaboration and the completion of modification to the company’s JV manufacturing facility in Germany.
That’s more like it. However now that Nikola has given investors expectations, they have to deliver.
Trust But Verify Before Buying Nikola Stock
An interesting bit of news caught my eye when preparing to write about Nikola. Apparently, Nikola has reached out to Hyundai Motor (OTCMKTS:HYMTF) to work on hydrogen technology. In fact, Milton said the country has made two prior proposals to Hyundai and both were rejected.
Hyundai has thus far declined comment. However, according to Kim Joon-Sung of the analyst firm Meritz Securities, Hyundai may wonder where the benefit would be. “Nikola needs to produce some tangible results to work with Hyundai on fuel cell cars or infrastructure,” said Joon-Sung, “but those are not certain at this point.”
Is this gamesmanship on Hyundai’s part? Perhaps. But it also could be evidence that Nikola, on its own, is not so close to the hydrogen future it’s promising.
Nikola needs to prove there’s more hope than hype for me to recommend Nikola stock.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
