The past year was nasty but never boring for investors of electric vehicle start-up Nikola (NASDAQ:NKLA). There was always something to talk about as NKLA stock holders endured scandal, controversy and manic share-price action.
Some folks would even go so far as to say that Nikola was the poster child of the hype-fueled electric-vehicle sector. Or, perhaps NKLA stock was symbolic of the over-enthusiasm surrounding special purpose acquisition companies (SPAC’s) in 2020.
But hey, maybe a new year can offer a fresh start for this embattled but fascinating automaker. So, can we find reasons to believe that the worst is over for NKLA shareholders?
Not long ago, I cautioned that NKLA stock investors should brace themselves for a lengthy uphill battle. That thesis still holds true, I believe, but hopefully today we can look ahead and find a light at the end of the long, dark tunnel.
A Closer Look at NKLA Stock
To put it politely, NKLA stock embarked on a round trip in 2020. We can visualize the stock’s path as an airplane that flew at a high altitude, then came back to Earth.
NKLA stock has a stunning 52-week range of $10.30 to $93.99. As you can see, well-timed traders could have made a fortune on this stock. For many investors, though, the returns weren’t necessarily so great.
When NKLA stock peaked in June, the bears were in hibernation mode and it seemed as if the share price would easily exceed $100. That wasn’t destined to happen in 2020, however.
As it turned out, NKLA stock finished the year at $15.26. From June onward, all of the bulls’ attempts to stage a sustained rally were thwarted.
For the coming year, it’s probably best if the bulls set realistic goals. Don’t concern yourself with the $100 level just yet. Let’s first see if we can get NKLA stock back to $25 and, just as importantly, keep it there.
The Bears Were Right
Along with setting realistic price objectives, NKLA stock bulls should accept that the skeptics were 100% correct in predicting hard times for Nikola’s stakeholders.
As the evidence mounted, the bear thesis only gained momentum throughout the year:
- Founder Trevor Milton found himself at the center of scandals involving allegedly highly inappropriate personal behaviors
- Research firm and short seller Hindenburg Research published a scathing report charging Nikola with “an intricate fraud built on dozens of lies”
- Not very long after that, Citron Research posted a scathing tweet, writing, “Congrats to Hindenburg for exposing what appears to be a total fraud… [Nikola’s] response warrants an SEC investigation to maintain integrity of EV mkt.”
- JPMorgan analyst Paul Coster expressed skepticism that Nikola would reach a partnership deal with automotive giant General Motors (NYSE:GM)
- Milton stepped down as executive chairman and board member at Nikola
- Nikola announced a revised supply agreement in which General Motors won’t take an equity stake in Nikola
- Nikola discontinued its potentially lucrative collaboration with waste management company Republic Services (NYSE:RSG) to develop garbage trucks.
I hate to compare owning NKLA stock to addiction recovery. Yet, the analogy is apt as the first step towards NKLA’s recovery will be for the stakeholders to admit that there’s a problem.
Hitting Rock Bottom
And, as we often see with the recovery process, sometimes we have to hit rock bottom before we can build ourselves back up.
I would say that the turning point occurred in late November with the unfavorably revised General Motors deal. NKLA shareholders suffered a major psychological blow when that was announced.
Still, General Motors hasn’t completely severed its ties to Nikola. Moreover J.P. Morgan analyst Paul Coster predicts that in 2021, the news flow for Nikola will “be less drama-filled” and will “turn generally positive.”
Coster actually assigned NKLA stock an “overweight” rating. In defense of this, the analyst cites the upcoming rollout of the Nikola Tre vehicle model.
Regarding the Tre, Coster expects a “steady flow of updates for the truck in 2021, as test milestones are met, as production ramps in Ulm, and as customers submit orders in midyear.”
The Bottom Line
So, should NKLA stock investors really expect less drama and more execution in the coming year?
Probably the best approach is to maintain a small position size in NKLA stock, and to adopt a wait-and-see attitude. After hitting rock bottom, Nikola remains a show-me story, but at least we can hope that the story will eventually have a happy ending.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
