Two months ago, shares of Nikola (NKLA +0.00%) had driven into a ditch. The stock was in danger of being delisted from the Nasdaq Stock Market, and the company's prospects seemed dire. But a lot has changed in July. After announcing a new order for its fuel cell trucks, Nikola saw its stock soar, and the risk of being delisted faded into the rearview mirror.
With shares building momentum, investors are wondering if now is a good time to put a charge in their portfolios with this electric truck manufacturer or to watch the story play out from the side of the road.
OTC: NKLA
Key Data Points
Optimists see the company headed in the right direction
Nikola has come a long way from the rocky road it traveled with Trevor Milton at the company's helm. Milton, the company's founder, was embroiled in controversy and eventually stepped down from leadership positions. Since January, Michael Lohscheller, an automotive industry veteran, has been the CEO.
Under Lohscheller's leadership, Nikola has logged several accomplishments that have energized investors' enthusiasm. Most recently, Nikola wowed the market when it announced an order for 50 fuel cell trucks from BayoTech, a hydrogen supplier. This complements the 12 customer orders for 140 hydrogen fuel cell trucks that the company reported having at the end of the first quarter.
The company has also reported some promising news about its battery-electric truck. Earlier this month, Nikola announced 45 wholesale deliveries and 66 retail deliveries for the second quarter, representing notable quarter-over-quarter increases over the 31 wholesale deliveries and 33 retail deliveries it logged in the first quarter. This growth suggests to bulls that the company is well positioned to achieve its 2023 total truck delivery target: 375 to 500.
The company's 2023 financial expectations also provide some encouragement. Nikola forecasts 2023 revenue of $140 million to $200 million. Should it achieve the midpoint of this guidance, it will represent considerable growth of 235% over the $50.8 million that the company reported in 2023.
Management also sees gross margin improvement this year. Whereas it was negative 206% in 2022, the company expects the loss to narrow, resulting in a gross profit margin of negative 75% to negative 95%.
What's powering the pessimists
While there are some hopeful signs for bulls, bears are not impressed. One pressing concern in particular is the company's financial health. Nikola's inability to generate organic cash flow for the foreseeable future means that the company will need to continue tapping the debt and equity markets to keep the lights on.
And it must happen fairly soon. At the end of 2022, Nikola had a cash balance of $323 million; yet at the end of the first quarter of 2023, this had dropped to $303 million. With the prospect of a debt-laden balance sheet or shareholder dilution, bears aren't too charged up about buying shares right now.
Another matter weighing on bears' minds is the growing competition. Arguably, Tesla (TSLA 5.46%) represents the most formidable competitor for Nikola. Tesla hasn't ramped up commercial production of its Semi, a battery-powered Class 8 truck, but it's on the way. It made the first delivery of the Semi in December 2022 to PepsiCo, which is now operating a fleet of 21 Tesla Semi trucks. The company had originally placed an order for 100 vehicles in 2017.
Besides Tesla, Lion Electric (LEV +3.45%) is also interested in the electric heavy-duty trucking market. In fact, Lion Electric has already achieved commercial production of its all-electric Class 8 truck, the Lion8, and it has secured a major customer, Amazon. Three years ago, Amazon placed an order for 2,500 Class 6 and Class 8 vehicles from Lion Electric, which it expects to receive by 2025.
Should you plug into Nikola now?
While Nikola has made some progress recently, it seems premature to conclude that the company is out of the woods just yet. Those with a high tolerance for risk might be ready to drive this EV stock into their portfolios right now, but the more prudent choice for most investors is to watch if Nikola is able to continue racking up successes.
Specifically, investors can check in with the company's second-quarter results to see if it remains on track to achieve its 2023 forecasts and if it has improved its financial health.
