Could the ‘China Effect’ Surprisingly Bolster Nikola Stock?

I’m not here to tell you that you should buy shares of the shamed electric vehicle (EV) manufacturer Nikola (NASDAQ:NKLA). With what short-sellers have accused the company of, and how much light has shined on it, this is a toxic organization to say the least. Conservative investors should absolutely stay away from Nikola stock.

But at the same time, most of my readers gravitate toward my work because I often provide angles that the competition doesn’t. Love or hate me, I’m not your typical writer. And honestly, if you gleaned any new information from my articles — again, whether you agree or disagree with the premise — my job is done.

So — I have to ask — is there anything about Nikola that hasn’t been touched on extensively?

I don’t claim to be an arbiter of all information on the company, but there is one angle that deserves more attention: China.

What GM Sees in Nikola Stock

As InvestorPlace contributor David Moadel points out, American icon General Motors (NYSE:GM) sees an opportunity with NKLA. That’s significant because, despite the ugliness that has pummeled Nikola stock, GM is sticking around with the underlying organization. The incentive, Moadel notes, is likely profit driven.

Further, I’ve mentioned before that GM has every incentive not to associate with bad actors. Remember, not too long ago, this was an American company that killed American drivers and devastated families. In our politically charged environment, that’s not something you should ignore.

But within this production partnership between Nikola and GM, there is a silver lining. By combining two American companies together to work on an innovative platform in fierce competition with China, they have a massive PR opportunity.

Not only would that help Nikola stock, it could potentially provide longer-term payoffs.

Anti-China Sentiment May Be a Hidden Catalyst

Undoubtedly, President Donald Trump must take responsibility for how he handled the novel coronavirus pandemic. Yes, Trump can blame the “China virus” or the “Chinese virus” or “kung flu” — whatever he wants to call it. But at the end of the day, he had an opportunity to show leadership, and he failed.

In addition, the racism that has been directed against Asian Americans — and not just by white Americans, as the mainstream media suggests — is awfully rich.

But fair is fair. If we’re going to blame our own president for his pandemic response, we must also criticize the Chinese Communist Party (CCP). Moreover, if global public sentiment is anything to go by, holding China accountable appears to be a bipartisan issue.

According to a Pew Research Center report, approximately two-thirds of surveyed countries across Europe, Asia and Oceania hold a very negative view about China. That will also likely worsen because, in my opinion, we’ve not seen any contrition from China’s top brass. Instead, the country has turned to nationalism, as the Wall Street Journal notes. It has confronted international anger with audacious indignation.

Essentially, China is the Houston Astros of the international community, a team that only the hometown appreciates. It’s enough to make you buy American whenever possible. And that’s how Nikola stock stands to benefit, potentially.

Heck, Trump could possibly win a second term because his toughness on China is more than justified.

This narrative is not as unrealistic as you might believe — for both Nikola and Trump.

How Nikola Could Claw Its Way Back

I want to be clear about something: I don’t agree with the rhetoric that Trump uses in his prosecution of China. But the reason he downplayed the novel coronavirus was because he didn’t want to panic everyone. Or, he felt that Americans were too foolish to not be panicked.

And maybe he made the right call there, given the toilet paper hysteria that ensued organically earlier this year. But by that logic — that some Americans are too foolish — he should have realized that some Americans are also too ignorant to distinguish a CCP bureaucrat from the average Asian American.

That’s my beef with Trump. His logic was applied inconsistently, and many Asian Americans of varying ethnic backgrounds have paid for it.

All said, though, the underlying message is correct — China should have been more transparent with the pandemic. And because the CCP is acting like the Astros, American and international consumers have a great way of penalizing it: a good old boycott.

Of course, boycotting all Chinese products is virtually impossible. What we can do, however, is avoid making expensive purchases that directly or indirectly benefit China. I would classify EV purchases as one of these cases.

Such collective global action would not just help Nikola stock directly. It would also provide a sharp contrast to Tesla (NASDAQ:TSLA), which has significant ties to China. For instance, Australia has an 81% unfavorable view of China according to Pew. So how likely is it that the Aussies will buy a Chinese-manufactured Tesla? Or the Swedish, at 85%? Or consumers in Japan, where the unfavorable view is 86%, the worst of the Pew-surveyed nations?

I mention this because the international animosity against China is real. And that could truly be a catalyst for Nikola stock somewhere down the line.

Still a Speculative Play

Having said all that, I don’t want you to misunderstand where I’m coming from — Nikola stock is highly speculative. Please don’t buy Nikola thinking that it’s guaranteed to move higher. It’s not.

However, I can’t ignore that the GM-Nikola partnership — if it continues forward as was expected before the exposé — has a strong fundamental catalyst. Obviously, the two companies would have to exercise this opportunity. But if they do so tactfully, it could work out.

Bottom line, if Trump wins the election, at least look into this narrative before making your decision.

On the date of publication, Josh Enomoto held a long position in NKLA.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


Article printed from InvestorPlace Media, https://investorplace.com/2020/10/could-the-china-effect-surprisingly-bolster-nikola-stock/.

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