Alternative fuel vehicle start-up Nikola (NASDAQ:NKLA) experienced a turbulent 2020 and it looks as if that turmoil will continue this year, testing the commitment of NKLA stock holders.
It is understandable that owners of NKLA shares may have suffered some whiplash from the stock’s back-and-forth movements. The behavior of NKLA stock does more than confirm the volatility associated with many of these emerging companies. It also suggests that not all of the aspiring vehicle manufacturers deserve investments.
Let’s take a look at some recent developments regarding Nikola.
NKLA Stock Climbs on Arizona Deal
Nikola shares headed north recently after the company announced it reached an agreement with an Arizona utility to produce hydrogen energy.
The deal with Arizona Public Service established charges for electricity to Nikola to manufacture hydrogen for the company’s proposed fueling network. In a statement issued on Jan. 12, Nikola described the rate schedule as “innovative.” Arizona utility regulators approved the accord which could lead to the company supporting the state’s power grid.
According to the company, the agreement will help create “a zero-emission heavy-duty freight corridor along the I-10 freeway between Los and Angeles and Phoenix.”
The next step will be to select a location for the hydrogen production facility.
News of the agreement helped NKLA stock spike almost 20% on Jan. 13. Shares ended the day up $1.33 at $20.05. It likely was welcome news for investors worried about the company.
Nikola at a Glance
Phoenix-based Nikola is the developer of electric- and hydrogen-concept vehicles. These include semi-trucks, a pickup truck, an off-road vehicle and a watercraft. The company also seeks to build a network of 700 hydrogen fuel stations.
NKLA stock hit the market in June 2020 after Nikola completed a reverse merger with a special purpose acquisition company. Shares began around $10 but surged to a peak of $93.99. That’s much higher than the stock’s low of $10.34. After experiencing higher altitudes, the stock recently settled in the middle teens.
The company has a market cap of about $7.7 billion.
Since it went public, the company’s founding CEO resigned amid personal and corporate scandals, and financial regulators launched investigations into alleged securities fraud. A major setback was the collapse of a deal with General Motors (NYSE:GM) to manufacture Nikola’s pickup truck, named the Badger. GM also had planned to invest in Nikola, but stepped away after the fraud allegations.
Loss of the GM deal prompted Nikola to scuttle the pickup truck development project.
Another Project Is Parked
Meanwhile, Nikola suffered another setback in December when an initiative to develop electric-powered trucks for a major sanitation hauler was canceled.
Last August, Nikola said it would produce up to 5,000 trucks for Republic Services, which seeks to convert its fleet to reduce emissions. Unfortunately, officials said it would cost more and take longer to make the electric trucks than planned.
“This was the right decision for both companies given the resources and investments required,” Nikola’s current CEO Mark Russell, CNN reported.
Shares of NKLA stock dropped about 10% on the news, which came out just before Christmas.
They may have even further to fall, my InvestorPlace colleague Mark Hake wrote recently. Citing the company’s list of problems, he questions how much its plant in Arizona will cost to build and why the ended the Badger project.
“A lot of people on Wall Street’s sell side have egg on their face with Nikola,” he wrote on Jan. 7. “They are trying to manage this to save face by slowly lowering their price targets.”
The Bottom Line
Nikola reached the stock market last summer with promise and was embraced by enthusiastic investors who pushed the price of NKLA stock to impressive levels. But the sun was too bright and things fell apart. Perhaps the company’s current executives can steer it stability and better days. But at this point, it seems hard to see Nikola being more than a small component of a much larger transportation evolution.
That brings us to NKLA stock. There are many red flags warning all but the bravest investors to stay away. Heed those warnings.
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. and began writing for InvestorPlace in 2020.