Please ensure Javascript is enabled for purposes of website accessibility

Why Nikola Stock Dropped Tuesday -- Though Maybe It Shouldn't Have

By Howard Smith - Jun 15, 2021 at 12:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

New competition in the hydrogen fuel cell vehicle space seems to support Nikola's ambitions.

What happened

Shares of electric vehicle start-up Nikola (NKLA -10.65%) dropped in market action Tuesday morning. But the source of the drop could arguably be considered excellent news for the company and its plans. As of 11:50 a.m. EDT, Nikola shares were down 7.6%.

So what

There are two pieces of news today that are related to the use of hydrogen in transportation, which Nikola is counting on for its long-term success. First, in what could be potentially considered direct competition for Nikola, the Jaguar Land Rover automotive brand announced it is developing a hydrogen fuel cell electric vehicle (FCEV) based on its new Land Rover Defender sport utility vehicle. Separately, General Motors and rail transportation leader Westinghouse Air Brake Technologies (Wabtec) announced a partnership to develop and commercialize hydrogen powered locomotives using GM's HYDROTEC hydrogen fuel cell systems.

A Nikola semitruck at a hydrogen fueling station.

Image source: Nikola.

Now what

In its first-quarter financial update provided in May, Nikola told investors construction of its Arizona manufacturing plant is on track, and the company reiterated that it plans to ship the first Nikola Tre battery electric vehicles (BEVs) to customers during the fourth quarter of 2021. Perhaps more critical for its long-term success, the company also said it expects to break ground on its first commercial hydrogen station this year, and to name additional hydrogen infrastructure and ecosystem partners.

In today's announcement that Jaguar Land Rover, which is part of global automaker Tata Motors, intends to develop its own hydrogen FCEV prototype, the company said, "Hydrogen-powered FCEVs provide high energy density and rapid refueling, and minimal loss of range in low temperatures, making the technology ideal for larger, longer-range vehicles, or those operated in hot or cold environments."

That statement, and the project, help to justify Nikola's ambitions to create a hydrogen FCEV semi-truck category along with the associated infrastructure. The fact that GM is planning to use its hydrogen fuel technology to power locomotives also helps rationalize the hydrogen fuel thesis. 

Investors are knocking Nikola's stock down today perhaps on the premise that deep-pocketed competition is on the way. But in the bigger picture, these announcements seem to help support the idea that there will be a large market for Nikola's business strategy. 

Howard Smith owns shares of Nikola Corporation. The Motley Fool owns shares of and recommends Westinghouse Air Brake Technologies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nikola Corporation Stock Quote
Nikola Corporation
$6.96 (-10.65%) $0.83
General Motors Company Stock Quote
General Motors Company
$36.62 (-2.50%) $0.94
Tata Motors Stock Quote
Tata Motors
$29.54 (-0.17%) $0.05
Westinghouse Air Brake Technologies Corporation Stock Quote
Westinghouse Air Brake Technologies Corporation
$92.41 (-0.46%) $0.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.