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Nikola Isn't a Low-Risk Stock, but Is It Worth a Look?

By Matthew Frankel, CFP® and Jason Hall – Updated Dec 9, 2021 at 12:16PM

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This auto company hasn't had a smooth ride so far.

Nikola's (NKLA -13.57%) brief history has been rather interesting so far, to say the least. However, there are some investors who think the risk-reward profile of the auto start-up looks very attractive at these levels. In this Fool Live video clip, recorded on Nov. 22, contributor Jason Hall discusses whether they'd put Nikola on their watch lists now. 

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Matt Frankel: This is Nikola, ticker symbol NKLA.

Jason Hall: Yeah, so Nikola, right. Anybody that's followed the story, going back to when the company went public, it's been something. I am just trying to be nice here. Trevor Milton, the founder who is the chairman of the company, up until I guess it's been a year ago now when everything just fell apart. The [unclear] ultimate salesmen. This is somebody who built this image of what Nikola was the time it wasn't anywhere close to it. I think you can call him a fraudster and not really be pushing any boundaries too much by saying that.

Long story short, there were a lot of claims made about what the company could do. What were those claims? Some proprietary technology around hydrogen. This is the first one I think we've talked about so far that is looking more at hydrogen as a fuel source. Why hydrogen? Hydrogen specifically, in this case, heavy-duty transit. Why hydrogen versus battery-electric? You've got Tesla (TSLA 6.24%) with their Tesla Semi that's doing it.

Why would you even look at hydrogen? Because at the end of the day, it takes like five hours to charge one of these heavy-duty trucks and the battery pack adds 15,000 pounds above fuel weight and every pound of battery you have, every pound of fuel is a pound of load that you can't carry. That's a major issue in the commercial heavy-duty transit industry. You can't spend hours recharging and you can't give away pounds, security, extra range, you can't do it. Hydrogen's the answer to that. That's been the big focus for a lot of these players and that's what Nikola has been trying to work on.

The bottom line is, they don't have any major proprietary technology advantage, as it was reported that they did. But they do have some R&D. They do have some interesting design. They have a lot of partners. I think they've broken ground now. John, maybe you can confirm. I think they've broken ground on their manufacturing facility and they're moving closer. They recently got another order for about 100 vehicles.

They are building a backlog to start building these vehicles. They're going to start out with electric and then add hydrogen over time. The reason I ranked it as high as I did because despite all of the warts, despite all of the operational missteps, I do think hydrogen is going to play a really important role in heavy transit because of all of the real-world challenges with electric that make it more difficult to do, technology has gotten a lot better. As we start seeing the cost to produce hydrogen come down as renewals get cheaper, they could have a nice little business. The valuation today, I think, gives us some opportunity for upside. With that said, massive risk here. Massive execution risk.

Jason Hall owns shares of Nikola Corporation. Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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