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Why Nikola Stock Was Down -- but Not Crashing -- This Morning

By John Rosevear – Sep 14, 2020 at 10:20AM

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Has Nikola successfully countered a short-seller's claims?

What happened

Shares of electric-truck start-up Nikola (NKLA 9.49%) were down again on Monday, on continued selling pressure in the wake of a hard-hitting report from a short-seller last week. But a statement from Nikola challenging the report -- and a new note from a Wall Street analyst defending the company -- may have been mitigating that selling pressure early on Monday.

As of 10 a.m. EDT, Nikola's shares were down about 4.4% from Friday's closing price.

So what

Nikola's stock has been under pressure since last Thursday, when short-seller Hindenburg Research released a scathing report that accused Nikola of being "an intricate fraud built on dozens of lies." From Wednesday's close through Friday's, the stock lost about 24% of its value.

Auto investors expected the selling pressure to continue on Monday -- and in fact, the stock was down more than 10% in premarket trading early on. But the selling pressure eased after Nikola released a rebuttal of Hindenburg's allegations, and after JPMorgan analyst Paul Coster said Hindenburg's core criticism of Nikola was "misconceived." 

The Nikola One electric semi prototype.

A short-seller said that the Nikola One prototype wasn't drivable. Nikola's response: Maybe so, but that was a while ago and our later prototypes are fully functional. Image source: Nikola.

In his Monday morning note, Coster said that Hindenburg's report didn't undermine the three aspects of Nikola's strategy that he finds compelling:

  • Nikola's "closed-loop" hydrogen-based transportation solution, in which it will provide a refueling network for fleets operating its hydrogen fuel-cell trucks
  • The leasing model for its fuel-cell trucks
  • The "best-in-class" set of partnerships to deliver trucking solutions quickly and with minimal up-front investment

As Coster sees it, the third point "got a huge boost" with the announcement of Nikola's deal with General Motors (GM 4.03%) last week, in which GM will engineer and build Nikola's Badger pickup truck. 

The GM deal adds to previous partnership deals with heavy-truck maker CNH Industrial (CNHI 0.80%) and auto supplier Robert Bosch, showing that Nikola has the ability to execute by leveraging other companies' core competencies, Coster said, and is "a major positive, not a negative." 

Coster maintained his previous overweight rating on Nikola's shares. 

Now what

Nikola's own response was somewhat less cogently argued, but it's also important to consider. In a nutshell, the company said that most of Hindenburg's allegations relate to events before 2017 or so, and that much progress has been made since. 

My take is that there's a lot of smoke here, but what seems to be emerging is this: Nikola's early claims may have been overblown, but -- today -- the company is well on its way to becoming a real business. 

What's that worth? It's still hard to say, and I think auto investors should expect more volatility as the market tries to figure that out over the next several days. 

John Rosevear owns shares of General Motors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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