The heightened investor enthusiasm for electric vehicle stocks this year suggests that the industry has finally come of age. Nikola (NASDAQ:NKLA), an EV upstart in the commercial realm, has been one of the story stocks in the industry this year. In its first month of trading, NKLA stock popped 68.3%. After stumbling in July, the stock price has recovered significantly this month. However, with revenues as far-off as 2024, the fervor surrounding the company isn’t justified for now.
Don’t get me wrong, Nikola is a novelty in the EV market marred with a lot of sameness. For starters, it focuses on the commercial realm, i.e., producing heavy-duty freight/semi-trucks. Moreover, these heavy-duty trucks utilizing hydrogen fuel cells producing relatively lower greenhouse gases. Nevertheless, its stunning $17 billion valuation is unproven so far, and the daunting road ahead makes it a risky bet.
Revenues Are Far-off
Nikola has made a laundry list of promises to its shareholders. How it fares in achieving these targets will underpin its future success. These promises primarily include its facilities expansion plans, modifications, OEM partner agreements, and its commercialization plans.
A lot of these targets are set in 2020; hence, investors will soon be getting a fair idea of the company’s progress. Finding reliable partners for OEM and its hydrogen stations are imperative for the company’s success.
Despite the aggressive targets, investors shouldn’t expect meaningful revenues until 2024. Though claims of having $10 billion in orders are enticing, these revenues won’t materialize until the completion of its Arizona facility. Additionally, it’s still in the building phase for its production facilities in Arizona and Germany.
The Challenge Ahead
As EV’s continue to become more commercialized in different parts of the world, competition levels are rising in tandem. Consumer automobile giants such as Toyota (NYSE:TM), BMW (OTCMKTS:BMWYY), and others are looking to establish a foothold in the industry. Navigating in such an environment would entail a lot of resilience from upstarts such as Nikola.
Additionally, substitutes for hydrogen fuel cells, such as lithium batteries, are ruling the roost so far. These batteries are proving to be more viable in terms of EV storage in the long run. Hydrogen fuel cell production tends to be more expensive as well.
Industry stalwart, Tesla is leading the charge in the expansion of lithium batteries. The company is investing heavily in developing the infrastructure for its production. It is also inspiring other companies such as GM (NYSE:GM) to invest in the technology as well. Alternatively, influential private investors such as Bill Gates and Jeff Bezos are betting big on flow batteries. You could talk about who wins in the lithium vs. flow batteries debate, but the one clear loser is the hydrogen fuel cell.
Nikola is also planning to make its move in the battery electric vehicle market. However, it’s tough to imagine how it could fare against giants such as Tesla (NASDAQ:TSLA) , with its focus on fuel cells. It would be more worthwhile for Nikola to focus on a specific technology rather than starting afresh with batteries.
Bottomline on Nikola Stock
Nikola has promised to keep, and a lot is riding on them. Regardless of what happens, revenues are still way-off at this point. Moreover, the challenges for hydrogen fuel cell technology is likely to become a major impediment for its long-term success. This doesn’t mean that I’m writing-off the company entirely, but I feel the hype surrounding it is excessive. Hence, it’s best to avoid Nikola stock at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article