Editor’s Note: This article was updated on Feb. 10, 2022, to include that Trevor Milton pleaded not guilty to charges brought against him.
Nikola (NASDAQ:NKLA) is a highly controversial company. The early history of NKLA stock revolves around fraud allegations, U.S. Securities and Exchange Commission (SEC) investigations, questions about special purpose acquisition companies (SPACs) as investment vehicles and its besmirched brand name.
However, there was an update in November. Specifically, the month brought news that Nikola is set to pay $125 million in fines to settle the SEC investigation against it. Still, that does little to make it worth buying. Essentially, the company has reset to zero.
Nikola is in a much better position than it was before, no doubt. But there’s little reason the stock will move upward quickly.
NKLA Stock and Lessening Troubles
Basically, NKLA stock is in a period in which it’s hoping to distance its name from the actions of Trevor Milton, its founder and former CEO. Milton founded the company back in 2014 and had long been known for making bold statements that bordered on being fraudulent claims.
In 2016, for example, the firm unveiled a prototype truck called the Nikola One which Milton referred to at the time as fully built and functional. However, reports are that engineers had warned the executive that the electric vehicle (EV) wasn’t ready. SEC reports are that the vehicle lacked the fuel cells and hydrogen storage tanks necessary to power it.
That’s just the tip of the iceberg when it comes to Milton. For instance, the CEO also made false statements about orders for the company’s vehicles. Ultimately, Milton resigned as CEO in September 2020 and was indicted on fraud charges in July 2021. He has pleaded not guilty to the charges.
Now, Nikola is moving out of this period. In November, it announced it would pay $125 million to settle the SEC suit. It will also seek “reimbursement from Milton for costs and damages in connection with the government and regulatory investigations.” In short, Nikola is distancing itself from the past and attempting to reclaim its tarnished name.
A Good Start
Honestly, that’s a good start. Nikola has dissociated the brand name from Milton. What’s more, the deal to pay the fine is finalized, which was confirmed back in December 2021. This will be a fresh beginning for the company.
However, it’s also important to note that Nikola is basically back at zero. That’s why it’s difficult to call NKLA stock anything more than speculative at this point.
Investors won’t know much more about the company’s financial standing until it releases earnings on Feb. 24. That’s still a few weeks away. Of course, it won’t matter much — financial metrics aren’t really what’s going to move Nikola now. It will continue to lose lots of money. Still, NKLA stock could rise if early delivery reactions are positive. That’s where the rubber meets the road for the company.
And there is some good news here as well. Back in October, the company signed a letter of intent with PGT Trucking to lease 100 of its trucks following a satisfactory demonstration program. That’s a positive, although it hasn’t materially amounted to much yet. Likewise, Nikola signed similar letters with SAIA and Covenant Logistics Group which provide for the leasing of up to 100 and 50 trucks, respectively.
Again, this is positive news for long-suffering investors in NKLA stock. But it doesn’t mean new investors should run out and purchase shares, either.
What to Do with Nikola
It’s too speculative to assume that NKLA stock will rise because the Trevor Milton era is in the rearview.
Rather, Nikola now looks like any of a number of other upstart EV companies. It has the potential to disrupt the traditional trucking industry moving forward, but there’s nothing substantial to indicate that is a foregone conclusion.
I’m as happy for Nikola as the next person. It must have been very difficult to work through those trials. But now the company has to simply prove it can produce quality EVs, too.
On the date of publication, Alex Sirois did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
