Nikola (NKLA +0.00%) has been a tough stock to trade over the past three years. Share prices for the electric truck maker closed at a record high of $79.73 on June 9, 2020, but subsequently plunged 99% to an all-time low of $0.52 a share by June 6, 2023. Its sluggish production and delivery rates, dwindling liquidity, and the conviction of its former CEO Trevor Milton for securities and wire fraud all made it an easy target for the bears.
But after hitting its all-time low, Nikola's stock price more than quadrupled over the past six weeks and now trades at about $2. That rally was initially driven by an update in early July which revealed it had produced 96 Battery Electric Vehicles (BEVs) and completed 175 deliveries in the first half of 2023 -- which suggests it could achieve its full-year goal of 250-300 deliveries.
Image source: Nikola.
Nikola also plans to launch its first hydrogen fuel cell electric vehicle (FCEV) in the third quarter, and the California Transportation Commission recently approved a $42 million grant to fund its construction of six hydrogen stations across Southern California with its partner Voltera. The companies plan to open 50 hydrogen stations by the end of 2028.
These positive developments suggest that Nikola isn't down for the count yet. But with an enterprise value of $1.84 billion, it still isn't cheap at 13 times this year's sales. Let's review another green flag and red flag for Nikola to see if it's worth buying.
OTC: NKLA
Key Data Points
The green flag: Its new deal with BayoTech
Nikola's stock surged 61% on July 13 after announcing that BayoTech, a producer of hydrogen fuel and transport equipment, would purchase up to 50 of its FCEVs over the following five years. The first 12 trucks will be delivered in 2023 and 2024. Nikola will also buy up to 10 BayoTech HyFill transports to deliver hydrogen to its fueling stations. Nikola CEO Michael Lohscheller said the two companies were "united by a common goal of providing reliable access to hydrogen."
On its own, this deal won't significantly boost Nikola's near-term revenue, since it would only translate to an average of six FCEVs sold annually in 2023 and 2024. Nevertheless, it's a clear vote of confidence in the future of Nikola's FCEV business, which relies heavily on government subsidies and the construction of new hydrogen stations.
The bulls believe Nikola's expansion of its FCEV business will grant it a first-mover advantage in the hydrogen-powered semi market and diversify its business away from its BEVs -- which already face competition from Tesla's (TSLA +2.45%) new Semi. The bears believe Nikola will struggle to ramp up its production of FCEVs and convince companies to switch over to hydrogen vehicles. But for now, Nikola's new partnership with BayoTech gives the bulls a bit more leverage against the bears.
The red flag: A failed attempt to double its shares
Nikola's biggest problem is its liquidity. It ended the first quarter of 2023 with just $121 million in unrestricted cash and equivalents, down from $233 million at the end of 2022. That's a bleak situation for a company that is expected to post a net loss of $656 million this year while only generating $147 million in revenue.
To raise more cash in the current quarter, Nikola sold $100 million of its shares at a discount to its trading price in a new public offering, liquidated Romeo Power (the battery pack maker it acquired less than a year ago), divested its stake in a European joint venture with Iveco, and laid off nearly a quarter of its employees. We won't know the exact impact of those decisions until it discloses its full second-quarter numbers on Aug. 4, but it might burn a little less cash sequentially.
But that might not be enough. Back in April, Nikola proposed to double its total number of shares from 800 million to 1.6 billion so it could raise more cash through new stock sales. That proposal, which requires the approval from owners of at least half of its outstanding shares, was rejected in June and shot down again in early July. In the latest vote, the majority of the shares which were voted actually approved the plan -- but it failed to exceed the 50% threshold of total outstanding shares because too many shareholders abstained from the vote.
However, a proposed change to that law in Delaware, where Nikola is incorporated, might only require a company to gain a simple majority of shares voted to increase its number of authorized shares. That change could take effect on Aug. 1 and give Nikola another shot at doubling its share count. But for now, this latest rejection raises a red flag for its balance sheet.
Nikola is still a speculative EV play
Nikola is certainly doing better than other struggling EV makers like Canoo and Faraday Future, but it still has a long way to go before it can be considered a stable growth stock. It might be worth nibbling on as a speculative play, but investors should be aware that it could still easy drop to zero if its cash runs dry.
