Nikola (NASDAQ:NKLA) stock is down about 1% in the premarket session, and NKLA is trending on social media today. The company, which manufactures trucks powered by hydrogen and electricity, has reportedly unloaded all of the assets of its subsidiary, Romeo Power.
Romeo, an EV battery maker, “ transferred all of its assets to an entity controlled by [its] creditors,” Investing.com reported. Specifically, all of Romeo’s “tangible and intangible assets” were taken over by SG Service Co., an entity created by Romeo’s creditors.
Nikola Raised the White Flag on Romeo
“Nikola is discontinuing its operations with Romeo Power,” a Nikola spokesperson stated, indicating that the EV maker had decided to give up on Romeo. Nikola’s electric trucks utilize Romeo’s batteries, and NKLA had likely been looking to cut its costs over the longer term by acquiring it. However, Romeo was probably generating significant losses and apparently had meaningful debt, leading Nikola to unload the subsidiary to save money.
The decision is in line with the streamlining strategy embraced by Nikola recently. In conjunction with that strategy, the automaker decided to shut down its European joint venture and produce both its “battery-electric and hydrogen fuel cell electric trucks on one assembly line.” Additionally, the firm elected to shut down its battery-manufacturing operation in Cypress, California.
What NKLA Stock Investors Should Watch
In the first half of the year, Nikola sold 175 of its battery-electric trucks, with 111 of those deliveries coming in Q2, and last month, CEO Michael Lohscheller. said in a statement that “Our battery-electric truck is in the marketplace and performing well for our customers, and the hydrogen fuel cell electric truck will go into production in a matter of weeks.”
Going forward, investors should try to determine the extent to which the demand for Nikola’s EVs is growing and watch for indications that the firm, which appears to have some cash-flow issues, is able to stay solvent.
On the date of publication, Larry Ramer 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.
