Nikola (NASDAQ:NKLA) stock has come surging onto the electric vehicle scene. However, while there’s room for others to join, Nikola stock seems to be ahead of its skis.
The company has unveiled some great-looking vehicles with impressive promise and has broke ground on its factory, too. But let’s not forget that Nikola isn’t producing any vehicles yet. Despite that, the company is being valued with a $15.8 billion market capitalization. Keep in mind that the stock is down about 50% from the highs.
While Nikola does show promise, today’s pricing is a bit too rich under the current circumstances. We already have Nio (NYSE:NIO) starting to hit stride, while Tesla (NASDAQ:TSLA) has become the most valuable automaker in the world by market cap.
Just because Nikola is also an EV producer doesn’t mean it should be in the same league as others that are already in production and have momentum.
Growing Pains as an EV Player
The EV story is nothing new — particularly for some of my long-time readers. I have liked Tesla for a very, very long time. However, it would be silly to argue that there haven’t been growing pains along the way.
CEO Elon Musk is an energetic leader, but there are times that his mouth (and his tweets) have gotten him and Tesla in hot water. Production issues, negative press, scaling the business and quality control are just a few of the growing pains that Tesla has encountered as well.
Nio too has had its share of issues. At some point, every EV maker will run into obstacles. I don’t know what those obstacles will be for Nikola — and hopefully it learns some lessons from Tesla and Nio — but there will be hurdles.
That’s not to say Nikola is bound to fail, only that a $15.8 billion market cap is a bit rich for a company that doesn’t even have a production facility yet.
At one point, this name passed Ford (NYSE:F) in market cap. That brings me to another point, which is that by the time Nikola gets to production, it very well could face big competition from traditional automakers making the switch to electric vehicles.
While Tesla’s Cybertruck has garnered a lot of attention, its design won’t be for everyone. Nikola’s Badger pickup is a good-looking truck. But will customers opt for Ford’s electric F-Series pickup over Nikola?
I can’t say, because I don’t know. However, what I can say is that it’s clear there will be more competition in the EV space when Nikola enters the market than when Tesla entered it years ago. That said, Tesla had to basically build out EV infrastructure from nothing, and that wasn’t cheap either.
Where Nikola Stock Stands Now
Look, every company will face its share of issues. I’m certainly not suggesting that Nikola is set up for failure or that its trucks do not seem solid.
Instead, it’s an argument of valuation. The stock price has gained momentum at a time where other SPAC plays — like DraftKings (NASDAQ:DKNG) — have done incredibly well and a time when EV stocks have strong momentum.
Nikola stock has rallied as if the company has proved itself, even though it has done no such thing. As for the stock, it’s done pretty well.
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While shares erupted to $93.99 in early June, Nikola stock has cooled down quite a bit since. However, it’s notable how $30 was support amid the latest dip. More impressive was the way that NKLA reclaimed the 20-day moving average and $40, while breaking out over downtrend resistance (blue line).
These marks now become critical points for bulls to defend. Below them — particularly $40 and the 20-day moving average — puts the $30 level back in play. On the upside, the next task is for bulls to reclaim the 50-day moving average, then $55.
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