Nikola’s Altered Agreement with GM Permanently Changed the Equation

In my most recent article about Nikola (NASDAQ:NKLA) in early November, I argued that NKLA stock was not a good idea for risk-averse investors until the company got its partnership with General Motors (NYSE:GM) sorted.

The Nikola (NKLA) website homepage on a cell phone screen.
Source: Stephanie L Sanchez /

Well, on Nov. 30, 2020, the parties released a press release that completely changed the outlook for Nikola the company, and Nikola the stock.

And not in a good way.

Nikola’s shares lost more than 25% of their value in a single day of trading. In the month-and-a-half since, they’ve lost several more dollars. As I write this, it’s trading around $20, down 79% from its 52-week high of $93.99, hit on June 9, 2020.

I feel for those who bought in early June. It could take you years, or never, to get that back.

For those looking to make a play on NKLA — and I’m only talking about the most aggressive investors — I’d wait for it to drop a few dollars into the low teens before taking the risk.

For the rest of you, I wouldn’t bother. Here’s why.

NKLA Stock Worth Less Than $3

My InvestorPlace colleague, Mark Hake, recently argued that NKLA stock is worth less than $2.42 a share. If that’s anywhere near accurate, my suggestion for aggressive investors to buy in the low teens could be way off target.

Hake bases that assessment on Nikola’s net-net value or net current asset value per share, which is the amount of cash left after accounting for all of its interest-bearing liabilities. He believes that the fourth-quarter 2020 numbers will push its net-net value even lower.

That’s because the company forced the redemption of 22,877,806 public warrants on July 22, 2020. Those shares were converted at $11.50 per share in early September based on public and private warrants given as part of the VectoIQ SPAC IPO in May 2018. The 122,194 public warrants not exercised by the end of the redemption period were redeemed for 1-cent per share.

The private warrants — 890,000, also exercisable at $11.50 per share — wasn’t exercised as of the end of September. Assuming their exercise, that’s another $10.24 million in cash for Nikola.

Based on a new net-net value of $939.64 million [$985.9 million in current assets at the end of Q3 2020 plus $10.24 million in cash, less $56.5 million in liabilities] and shares outstanding of 385 million, the estimated new net-net value per share is $2.44, slightly higher than Hake’s estimate.

Of course, that doesn’t take into account any drain on cash during the fourth quarter, so his math makes total sense.

Plenty of Alternatives

In my article from November, I argued that buying Caterpillar (NYSE:CAT) was a smart way to bide your time while the Nikola/GM affair got sorted. I suggested CAT stock because one of Nikola’s largest shareholders and a director was a Caterpillar dealer in Tennessee and Mississippi.

Currently yielding 2.1%, my feelings on the subject haven’t changed. In fact, they’ve probably gotten stronger given the fact Nikola dumped the Badger pick-up truck, and it can’t seem to find any major corporations willing to take on its hybrid semis or hydrogen trucks.

On Dec. 23, 2020, Nikola announced that its collaboration with Republic Services (NYSE:RSG) to develop battery-electric garbage trucks was finished. Kaput.

Earlier, in December, video evidence suggested the company was preparing its Arizona construction site for an actual build. On Jan. 7, 2021, Nikola announced it would get water and wastewater services from Global Water Resources (NASDAQ:GWRS). Global Water expects to get the permit in the first quarter of 2021, so there’s a glimmer of hope that Nikola is still going to build its production facility.

Needless to say, Nikola is going to burn through a lot of cash to get the plant up and running and producing actual vehicles. And as my colleague stated, this will force it to find expensive debt and worsen the situation.

At this point, I don’t see NKLA stock making sense for anyone but the most speculative of investors.

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

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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