Nikola (NASDAQ:NKLA) stock has been on a tear since it went public on June 3 through a reverse merger with a SPAC (special purpose acquisition company). But several things bother me. The company released its earnings report for the second quarter on Aug. 4. But Nikola didn’t discuss the results of its Badger pickup truck reservations. This event was not even a major accomplishment for the company in the earnings release.
As you may recall, the company, with much fanfare on TV and online interviews, opened reservations on June 29 for the Badger electric pickup truck. But there was no follow-up press release on the results of the reservations, and no mention in the Q2 earnings release. The subsequent 10-Q also did no talk about the Badger reservations.
I decided to try to figure out what happened. For example, if you go to the Nikola reservation page, one of the first things you see is that the $5,000 reservation package is sold out. That option provided, among other things, a $5,000 discount (on top of the deposit) off of the Battery Electric Vehicle (BEV) price of $60,000 or $5,000 off of the Fuel Cell Electric Vehicle (FCEV) $80,000 price tag.
There is also a $1,000 reservation for a $1,000 discount. There is also a $250 deposit option with, as you guessed, a $250 matching discount.
But Nikola did not say how many $5,000 reservations it picked up. Its financial statements give us a little clue.
Using Financial Statements To Estimate the Badger Orders
For example, prior to the June 29 reservations, Nikola had restricted cash of $4.132 million as of June 15 in an S-1 filing, on page 38. But that figure rose to $8.86 million in the 10-Q. So that means in the space of fewer than two months its restricted cash grew by $4.73 million. That is likely from the Badger reservations.
Let’s assume that 80% of the reservations were for $5,000 deposits. The remainder were for $1,000 reservations. I used an algebra equation to estimate how many orders they received, and you can contact me on LinkedIn if you want that equation. Suffice it to say that I estimate that there were just 1,126 truck reservations.
My algebra equation suggests that there are about 901 orders placed with a $5K payment, for about $4.5 million, and 225 orders with a $1,000 down payment, or $225,000.
It’s possible that there are more orders with the $1,000 down payment as well. In that case, there are 2,628 total orders. This includes 526 $5k orders and 2,102 $1K reservations.
In any event, this is not a lot of reservations — between 1,126 and 2,628 reservations. And don’t forget, the money is fully refundable by Nikola if you change your mind. So no wonder, there is no mention of it in the Q2 earnings release, nor any press release, and not even the 10-Q.
Binding Vs. Non-Binding Reservations
Frankly, this is not impressive. Nikola was probably not excited as well. This isn’t the first time it has had issues with reservations.
For example, the 10-Q says that in 2019 the company stopped taking reservations for its FCEV trucks. Here is how they couched the issue: “We consider the reservation list as an indication of potential demand rather than a product backlog ….”
In other words, the Badger reservations are meaningless.
Nikola plans to change its reservation system. Here is what they say now. “Approximately twelve months from commercial production in (sic) second half of 2023, we plan to require existing and new FCEV reservations to become binding with deposits.”
In other words, the restricted cash can’t use it to produce the vehicles, at least until the reservations become binding. It claims to have 14,000 reservations for FCEV trucks, but only 800 of them are binding as of June 30.
The Republic Services Order
The announcement did not say if the orders were binding. There is also no price listed. So we cannot estimate the value of this contract. Republic Services probably wants to test the trucks before giving a binding order.
Valuing Nikola Stock
So, again, this is not impressive. These are just reservations, like with the Badger. Therefore, Nikola stock has an exalted market capitalization with these 800 binding orders, and possibly 2,500 more, for a total of 3,300. This does not include the Badger reservations.
For example, let’s assume Nikola charges $750,000 per EV truck. That implies revenue of $2.475 billion spaced out over several years. Next, let’s estimate the Nikola stock market capitalization and compare that to the sales forecast.
Nikola recently forced its public warrant holders to exercise their warrants. So, as of July 30, there are now 378.98 million shares outstanding. Therefore, at $39.37 per share Nikola stock has a market capitalization of $14.92 billion.
That means Nikola stock trades for an estimated multiple of 6 times sales. For me, that is simply too high a multiple of forecasted and estimated, potentially binding sales.