The last few months were difficult for Nikola (NASDAQ:NKLA) and shares of NKLA stock, which plunged on the heels of what I’ll describe as non-automotive developments.
Frankly, a graph charting the price of NKLA stock looks like the path home followed by intrepid mountain hikers. This determined descent won’t make investors happy. Holders of the stock have much to be troubled about as they see shares of other alternative-vehicle companies faring much better.
There are serious storm clouds hovering over Nikola that should not be ignored.
A Look at NKLA Stock
Nikola is the developer of electric- and hydrogen-concept vehicles. These include a pair of semi-trucks powered by hydrogen, an electric semi aimed for Europe and Asia, an electric pickup truck called the Badger, an off-road vehicle and a watercraft.
The company reached the stock market this summer via a reverse merger with a special purpose acquisition company and is traded on the Nasdaq under the ticker NKLA. Its market cap is about $7.29 billion.
Prices of NKLA stock so far ranged from $10.27 per share to an impressive high of $93.99 and are currently trading around $18.
Nikola stock has a history of high volatility.
The stock also received unwelcome scrutiny after a short-seller in September accused Nikola of securities fraud. Two months later, the two federal agencies – the Securities and Exchange Commission and the Department of Justice – began investigating the company.
NKLA Takes a Tumble
NKLA stock also faces downward pressure from other developments.
One is the collapse of a deal where legacy automaker General Motors (NYSE:GM) was going to acquire an 11% percent stake in Nikola and manufacture its Badger pickup. News of the preliminary agreement fueled a rise in Nikola shares. Conversely, confirmation of the rumored collapse sent shares down.
GM reportedly still will provide Nikola with fuel-cell technology. But the equity stake and Badger production accord were ended.
Nikola responded by abandoning the Badger project and refunding deposits.
In addition, NKLA stock is pressured as Nikola’s lock-up period expires and shares hit the market. Volume in the stock was up to three times greater than usual. Most of the released shares were held by Nikola founder and former CEO Trevor Milton.
Milton resigned from the company in September following the fraud allegations.
Milton, meanwhile, became the center of controversy both after the securities fraud allegations and after he was accused of sexual misconduct by two women. The women said they were teens when the incidents occurred in Utah. The women reported their claims to authorities in Utah.
Milton denied the misconduct claims.
Plenty to Process
It’s a lot for investors to process. Not surprisingly, there are basically two schools of thought about investing in Nikola.
One camp feels the company is worth a risky contrarian bet because of the potential in its concept products. The thinking is that demand for emission-free transportation is at its very early stage and will only increase as the world seeks to shift to vehicles powered by hydrogen fuel cells and batteries.
On the other side are those who believe there’s too much going against a company that has only built concept vehicles. Nikola’s most realistic bid for manufacturing dissolved into thin air when GM backed out in the wake of the allegations of securities fraud. This decision by GM speaks volumes.
The Bottom Line
NKLA stock demonstrated remarkable resilience since Nikola went public in June. The company benefited from the market’s enthusiasm over alternative vehicles. Has that support been eclipsed by recent events? This seems likely. The company finds itself in a hole and digging out could prove difficult.
Is it time to buy NKLA stock on the dip? Generally speaking, the answer could be yes for investors willing and financially able to stomach the rising risk and volatility. There are electric-vehicle stocks that are more promising in the long term, however, and certainly without the drama.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.