There’s No Reason to Believe in Nikola Stock Anymore

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Investors seem to be hoping that the shifting political winds can revive Nikola (NASDAQ:NKLA). A bunch of green energy and electric vehicle (EV) stocks have soared following the vote on Tuesday. And with former Vice President Biden seemingly heading to a victory, that makes sense. A Biden Administration may offer a lot more funding for green energy-focused operations. Nikola stock jumped this week on those hopes.

Nikola Stock: Image on phone screen

Source: Stephanie L Sanchez / Shutterstock.com

But will any of this end up truly mattering to Nikola’s forward outlook? I’m not at all sure about that. In fact, many pressing questions about Nikola stock remain in light of the shocking details that came out about the company earlier this year.

The company infamously faked a prototype vehicle demonstration by rolling a truck down a hill to make it look like it was operating on its own power.

Beyond that eye-catching story, numerous other concerns of an equally serious nature remain. Does Nikola have much proprietary technology, or is it mostly just assembling other people’s parts? Will General Motors (NYSE:GM) stick to its agreement with Nikola?

If not, how will Nikola move forward in terms of manufacturing any vehicles? And who would want to fund the company in the future given all the uncertainty? These are all pressing questions for Nikola’s investors.

The GM Deal and Nikola Stock

Earlier this summer, Nikola agreed to what appeared to be a transformative deal with GM. GM would inject capital into Nikola. In return, Nikola would outsource much of its manufacturing to existing GM plants, rather than doing its own work at its planned site in Arizona.

This appeared to be a win-win for both parties. GM got a profitable manufacturing arrangement, and would ride along with Nikola’s trendy brand. Investors fear that the established auto companies are getting left in the dust. So, being on the ground floor with Nikola could have been a game-changer for GM.

Nikola, by contrast, needed validation of its technology and brand. Working with GM would have provided that. Additionally, letting GM handle manufacturing would have cleared up a lot of logistical challenges. Witness how many issues Tesla (NASDAQ:TSLA) has had with production capacity and quality doing everything on its own. By contrast, Nikola appeared to have a unique and beneficial partnership model to scale up, but now that’s in danger.

Can Nikola Go It Alone?

Nikola’s chief executive officer (CEO) Mark Russell put on a cheerful posture despite the GM deal potentially breaking down.

“We have the ability and we have a base plan of doing it ourselves. If we have a partner, that just enables us to consider going faster and helps reduce the risk,” said Russell discussing the GM situation last month. “We’ve proven that over the years that we are a partnership company when those things are available to us.”

However, it’s uncertain if Nikola will really be able to go it alone. The company’s prior base plan didn’t involve having commercial sales until 2023.

The planned factory site in Phoenix is still a virtually empty plot of land at this point. Will the company’s finances and employee morale hang on long enough to get to production after the scandal-filled year that it has suffered? Somehow, I suspect it will be challenging for Nikola to simply revert to its base case at this point.

NKLA Stock Verdict

Trevor Milton, for all his shortcomings, was a charismatic leader. When he spoke, you really got the sense that Nikola could be something special. It was easy (perhaps to a fault) to give him the benefit of the doubt.

Without Milton, however, who knows if Nikola will be able to find any similar animating force. It takes a lot of conviction and willpower to drive a company with no revenues forward to success. And now, any such confidence in Nikola is shattered.

This is a busted story, and there’s nothing there in terms of current revenues or profits to fall back on while the new leadership tries to pivot the company.

Add it all up, and Nikola is a highly speculative gamble at this point. Could new management make something of the current mess? Yes, absolutely. But it’s really hard to argue that NKLA stock is worth the current $7 billion market capitalization.

There’s just not much there, in the way of either current revenues or likely future developments to justify anything close to that valuation. As long as the green tech stock rally continues, Nikola might be able to ride the wave. But traders should look to make a graceful exit before Nikola’s bounce abruptly ends.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


Article printed from InvestorPlace Media, https://investorplace.com/2020/11/theres-no-reason-to-believe-in-nikola-stock-anymore/.

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