I’m a big believer in the electric vehicle space. I have been for a long time. But I have been, and remain, a skeptic toward Nikola (NASDAQ:NKLA) and NKLA stock.
That might seem like a contradiction. After all, Nikola has positioned itself as a potential leader in Class 8 trucks, or semis. And while semi adoption will take longer than that of passenger cars, largely due to power requirements, the Class 8 market is enormous.
But the long-running problem with NKLA stock is that Nikola itself remains largely an idea. Indeed, I noted last year that the company had a $16 billion market capitalization but not a single completed production facility.
The “good news” is that the current market capitalization is down to $7 billion, ostensibly making NKLA stock cheaper. Of course, the good news then was that the $16 billion figure was less than half of what it was at the stock’s peak.
In the context of everything else going on here, that cheaper price on its own isn’t good enough. Nikola remains largely an idea, and until that changes it’s going to be difficult to recommend Nikola stock.
The Nikola Model
Fundamentally, there was no news in Nikola’s fourth quarter earnings release last week. The company generated no revenue in the quarter. Nikola lost significantly more money in Q4 FY2020 than it had the year before, but it’s spending more as it tries to bring its trucks into production.
But just because there was no fundamental news doesn’t mean there was no news. In fact, there was one big piece of news — which might be better characterized as a big lack of news.
It’s important to understand what Nikola’s business model is. Yes, the company is looking to manufacture Class 8 trucks that run on fuel cells. That’s not the entire model, though.
What Nikola plans to offer is an entire solution for trucking companies. That includes the fuel. For instance, if you go back to the company’s merger presentation from last year, Nikola highlights its “bundled FCEV offering.” That includes the FCEVs (fuel cell electric vehicles), but also the hydrogen needed to power them.
The reason Nikola is following that model is that current hydrogen prices — over $16 a kilogram in California — keep fuel cell semis from being cost-effective. Nikola needs not only a charging station network, but low-cost hydrogen to fill those stations. Otherwise, even the best trucks in the world can’t compete.
Where’s the Partner?
For that effort, Nikola needs a partner. It doesn’t have the technology or the financial resources to build out that side of the business.
But Nikola doesn’t have a partner yet. That’s despite the fact that Nikola repeatedly has said a deal is just around the corner. Back in November, during the company’s third quarter earnings call, management said a partnership would be announced by the end of 2020.
That deadline was slipped. On the Q4 call, Nikola chief executive officer Mark Russell said that last year’s report from Hindenburg Research had led to the delay.
But, of course, that report was released long before the Q3 call. Nearly four months later, Nikola is still claiming that there is greater “intensity in those discussions,” as Russell termed it. There’s nothing concrete, however, and not much evidence that a deal is on the horizon. And, as Russell said later in the Q&A, now Nikola is talking about using “multiple partners,” something which wasn’t floated back in 2020.
Again, the Nikola business model doesn’t work without hydrogen fueling infrastructure, and the infrastructure doesn’t exist without partners. Without a deal, Nikola simply can’t move forward. Other companies don’t have that problem.
Credibility and NKLA Stock
There was one more piece of news, though it was somewhat buried. In its Form 10-K filed with the U.S. Securities and Exchange Commission, Nikola addressed the allegations made by Hindenburg last September.
Nikola did contradict Hindenburg’s assertion that the company is a “massive fraud.” But it also admitted that nine separate assertions made in the report were true.
Here’s the problem. Back in September, Nikola insisted that the report was “false and misleading.” Now, quietly, it’s admitting that’s not the case.
I can see why some investors want to look forward. But let’s understand what Nikola is trying to do: build a billion-dollar business, and an industry leader, from scratch.
Any investor even considering NKLA stock needs to believe that there’s a real chance of the company doing exactly that.
It’s hard to have much confidence at this point, however. There isn’t enough progress being made, and management has now destroyed an awful lot of credibility. Yes, NKLA stock is cheaper, but in that context it’s pretty obvious why.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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