November was a solid month for investors in Nikola (NASDAQ:NKLA) stock, even after some devastating news from General Motors (NYSE:GM) sent the stock tumbling more than 23% on Nov. 30. Despite the day’s losses, Nikola still is up more than 7% for the month.
Nikola became a public company earlier in the year with the initial promises to design and manufacture hydrogen-electric trucks. In February, the group unveiled the Nikola Badger pickup, to be offered in fuel-cell electric (FCEV) or battery electric (BEV). However, it currently has not manufactured or sold any trucks.
The stock fell hard today after the company announced its new supply agreement with GM doesn’t include a previously announced GM equity stake. The company previously planned to sell 47.7 million shares to GM for $2 billion, but that’s off the table now.
If you are a shareholder with recent profits, you may want to take some money off the table. NKLA stock will likely come under even more pressure in December. Potential shareholders may look to build a position in Nikola stock as the stock becomes heavily discounted.
Hydrogen Strategies Are Gaining Ground
Investors bought into Nikola’s alternative energy hype until September, when its founder and then-CEO Trevor Milton resigned amid fraud allegations. Risk appetite in NKLA stock picked up after a difficult period over the past few weeks.
Despite the recent choppiness in Nikola shares, it is important to appreciate the potential for hydrogen within “the context of decarbonization of the energy system.” A study by Martin Lambert, a research fellow at Oxford Institute for Energy Studies, highlights that increasingly countries are “considering the potential of renewable hydrogen.” The European Union, which takes an integrated approach to decreasing carbon footprints, is especially putting energy into hydrogen strategies.
Recent research led by Dong-Yeon Lee of the Energy Systems Division at Argonne National Laboratory in Illinois, cites:
“Medium- and heavy-duty (MHD) vehicles account for a significant portion (20–25%) of energy consumption and air emissions in the U.S. transportation sector… To improve MHD trucks’ energy efficiency and reduce their air emissions, electric vehicle technologies (e.g., battery electric or hydrogen fuel cell electric) are emerging as viable options. …
The authors differentiate between the battery electric and hydrogen fuel cell electric vehicles and say, “Like battery electric trucks, hydrogen fuel cell electric trucks (FCETs) create zero tail-pipe emissions and are solely driven by electric motors… [H]ydrogen cost is expected to decrease with economies of scale and improved utilization of hydrogen refueling stations. Moreover, compared to battery electric trucks, FCETs generally have a longer driving range and refuel much more rapidly.”
Put another way, the technology that investors are betting on via investing in NKLA stock is important and potentially highly promising. However, as Nikola’s quarterly results has recently shown consumers and investors alike will need time for such a truck.
NKLA Stock’s Q3 Results
Nikola issued its third-quarter results on Nov. 9. The company currently has no sales or revenue. Net losses were $117.5 million. A year ago, it had been $15.5 million. GAAP per share loss came at 31 cents. In Q3 2019, it had been 6 cents. But its market capitalization stands at $10 billion, an incredible amount for a company that makes no money.
The earnings report highlighted, “As a pre-revenue company, Nikola believes the best way to evaluate its results is to monitor the Company’s progress toward achieving its milestones.”
Nikola is currently collaborating with CNH Industrial’s (NYSE:CNHI) Iveco, an early investor in NKLA stock. The two companies have recently started “assembling the first five Nikola Tre BEV prototypes at Iveco’s industrial complex in Ulm, Germany, and recently completed the assembly of the first Nikola Tre.”
However, there is not likely to be a final truck for many months. In other words, there will not be any revenue, yet.
In the quarterly statement, management also said discussions regarding a potential deal GM were continuing, which made some investors nervous about the realities of the deal. Many wondered whether the company actually has any fuel cell or electric vehicle technology to start with.
Those questions were answered today, as Nikola said GM will integrate GM’s Hydrotec fuel cell technology into Nikola’s Class 7 and Class 8 trucks. The companies are also planning to discuss using GM’s Ultium battery system in Nikola’s trucks.
GM’s moves to hedge its bet with Nikola is putting extreme pressure on NKLA stock.
The Bottom Line
Shareholders do not know when the company will generate revenue. Therefore, they are currently investing in forward-looking statements issued by management.
Mark Russell, Nikola’s new CEO, commented in the quarterly report press release, “We delivered on our commitment to assemble the first Nikola Tre BEV prototypes… I look forward to building on our momentum as we execute our strategy and lay the groundwork to become an integrated zero-emissions transportation solutions leader.”
Thus, short-term volatility in shares will continue to be high. If you are currently a shareholder with paper profits, you could consider decreasing some of your exposure.
Alternatively, you could initiate an ATM covered call position. For example, an Dec. 18-expiry covered call would decrease the volatility in your portfolio and offer some downside protection.
NKLA stock would need substantial good news to move the price past $40 to become the Tesla (NASDAQ:TSLA) of trucking.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil Ph.D. has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.