After struggling with a series of difficulties for many months, electric semi truck maker Nikola (NKLA 7.23%) may finally have some light at the end of the tunnel with several recent developments. Foremost among these is its delivery of its first battery-electric Tre semi tractor trailer to a customer. Then, several other positive developments came at the same time. However, even if these factors come together just right, there are still many better investments among EV makers.
1. Nikola's test delivery of trucks is finally moving forward
Nikola achieved a critical milestone right before Christmas when it delivered its first-ever commercial electric vehicle (EV) to California-based Total Transportation Services on Dec. 22. The Tre BEV truck is the first of four trucks Total Transportation is planning to buy from Nikola in order to test the vehicles. If the trials are successful, the company has issued a letter of intent to buy 100 more -- 30 in 2022 and the remaining 70 in 2023.
Image source: Nikola Corporation.
Nikola also received an initial order for 10 test trucks from Heniff Transportation Services, with 90 more to follow if the test works out satisfactorily. The fact that Nikola has actually delivered a complete and apparently functional truck to one of these clients makes it much more likely it will manage to build the rest as well.
The relatively small numbers involved in both the initial and followup orders make it likely Nikola will be able to deliver without being delayed by supply chain difficulties, either.
Even if it doesn't have all the components in inventory, it will still be much faster and simpler to find parts for a few dozen vehicles than for thousands or hundreds of thousands, as would be the case with a full-production model. It seems more likely to be able to avoid major delays.
2. Nikola is free of further SEC investigation
Nikola's founder, Trevor Milton, was indicted earlier this year by a federal grand jury on allegations of repeated fraud. The charges alleged Milton lied about Nikola's situation in many different ways to generate interest and drive up the company's share price. The indictment claimed retail investors were duped and lost hundreds of thousands of dollars as a result, alleging the plan "targeted individual, non-professional investors" in particular, and called for Milton to forfeit approximately a billion dollars of personal profits.
The case naturally weighed on Nikola's stock market performance. As of Dec. 21, however, the company agreed to pay the SEC $125 million as a civil penalty, broken up into five $25 million payments at regular intervals over the next two years. In exchange for settling the fraud case, Nikola is freed from the case, noting in a press release that the settlement "resolves and concludes all government investigations of Nikola." It also says it "neither admits nor denies the SEC's findings in this matter."
Since Nikola has already set aside $125 million from its third quarter (Q3) to cover the agreed-upon payments, the matter should have no further effect on the company's finances. Additionally, it plans to seek reimbursement of the amount from Trevor Milton himself, a legal action that, if successful, could cancel out the incident's direct financial effects almost completely.
3. The company is a first mover in a critical sector
Nikola's success at getting actual vehicles into on-road testing, and not merely working on prototypes, gives it least a chance to establish an early foothold in the emerging electric and hydrogen trailer truck market. According to the Lawrence Berkeley National Laboratory of the Department of Energy, semi-trucks currently generate a third of greenhouse gas emissions despite being vastly outnumbered by passenger cars and lighter vehicles. The environmental benefits of switching to zero-emissions trucks are significant enough that subsidies and demand are almost certain to increase, given the current swing toward EVs and government support for their adoption.
The study also shows BEV or hydrogen semis cost 13% less per mile to run, providing a strong economic incentive for commercial operators to switch over as functional vehicles become available. Allied Market Research projects a 25.8% compound annual growth rate (CAGR) for the EV commercial truck market worldwide through 2027, and momentum appears likely to grow well beyond that date.
If Nikola's trucks pass their initial tests with actual commercial customers and it ramps up production to meet the follow-up orders, it could establish a solid foothold in a specific market sector (electric semi-tractors) with colossal growth potential.
However, this is merely speculation at this point, and investors would probably be well advised to wait at least until the real-world tests by Total Transportation and Heniff Transportation prove whether or not Nikola's vehicles are road-ready.
While Nikola's current low price could be viewed as a good entry opportunity if everything turns out well for Nikola, it will be at least three years before Nikola moves beyond making a few hundred trucks to mass production. Investing now is a move requiring immense patience and could easily go wrong if Nikola's vehicles fail to meet expectations or a host of other possible problems send it into a skid again.
There are plenty of other electric car stocks offering faster, stronger, and more certain returns right now. These include near-certain winners like the market leader Tesla (TSLA -1.11%), so at this point, Nikola looks like a risky stock that will take a lot of things to swing in its favor over the next several years.
