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Why Shares of Nikola Lost 25% in December

By Lou Whiteman - Jan 4, 2021 at 10:20AM

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The bad news continued to pile up.

What happened

Electric truck start-up Nikola ( NKLA -4.35% ) took investors on a wild ride in 2020, and December was no exception. The company's shares fell 25.2% for the month, according to data provided by S&P Global Market Intelligence, as the constant drumbeat of bad news continued.

So what

Nikola was a Wall Street darling when it made its public debut earlier this year, but the stock has fallen on hard times of late. The company was hit by an attack by a short-seller accusing Nikola of overhyping its products and technologies in investor demonstrations.

Founder and former executive chairman Trevor Milton left the company in September, and the management team has been scrambling in recent months to reinvent the business and get investors interested again.

A Nikola truck prototype.

Image source: Nikola.

In early December a post-IPO lockup that had previously barred insiders from selling shares expired, freeing up a lot of additional stock to be sold. Nikola also announced a reworked deal with General Motors that fell far short of what many investors had expected, raising fresh uncertainty about the company's prospects.

Nikola was further pressured later in the month after the company lost a massive order from waste collection giant Republic Services. That deal, which called for Republic to buy at least 2,500 waste and recycling trucks and which offered Nikola a chance to demonstrate its technology, was a big part of the remaining growth story at Nikola.

Now what

Nikola shares have lost more than 75% of their value since summer, yet the company is still valued at $5.7 billion. There's the potential for a real business to emerge from this chaos, but buying in and hoping for the best right now still feels like trying to catch a falling knife.

The hope is that with most of the bad news now out, Nikola can focus on rebuilding its business and the news flow can shift toward incremental positives. Perhaps that will happen. But for now, it's hard to blame investors for watching from the sidelines.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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