When Nikola (NKLA 7.23%) went public by merging with a special purpose acquisition company (SPAC) three years ago, many investors dismissed it as a blatant attempt to ride the coattails of Tesla's (TSLA -1.11%) success. Both companies produced electric vehicles, and Nikola seemingly adopted the Serbian-American inventor's first name only because Tesla had already claimed his last name.
But unlike Tesla, which mainly produces electric sedans, Nikola set out to produce electric and hydrogen-powered semi-trucks. It also planned to build a network of hydrogen charging stations for its fuel-cell electric vehicles (FCEVs).
Image source: Nikola.
During its SPAC presentation, Nikola claimed it could deliver 600 BEVs (battery-powered electric vehicles) in 2021; 1,200 BEVs in 2022; and 3,500 BEVs in 2023. It also said it would sell 2,000 FCEVs in 2023 as it opened its first 10 hydrogen stations. But in reality, it only delivered 131 BEVs in 2022 and aims to deliver 250-300 BEVs this year.
That shortfall, along with the criminal conviction of its former CEO Trevor Milton for securities and wire fraud, caused many investors to abandon Nikola. But could this out-of-favor EV stock bounce back and actually surpass Tesla's market cap by 2030?
How rapidly would Nikola need to grow to match today's Tesla?
Nikola currently has an enterprise value of $2.5 billion, or 17 times its projected sales for 2023. Tesla has an enterprise value of $801.9 billion, which values it at 8x this year's projected sales.
Nikola is trading at a higher valuation than Tesla because it's expected to grow a lot faster if it successfully ramps up its production of BEVs and FCEVs. For now, analysts expect its revenue to soar from $51 million in 2022 to $864 million in 2025 -- which would represent a jaw-dropping compound annual growth rate (CAGR) of 157%.
That would make Nikola comparable to Tesla about 10 years ago. Between 2012 and 2013, Tesla's revenue surged 387% from $413 million to $2.01 billion as it significantly ramped up its production of its Model S sedans. From 2013 to 2018, Tesla's revenue rose at a CAGR of 61% to reach $21.4 billion.
If Nikola generates $864 million in revenue in 2025 and also grows at a CAGR of 61% through 2030, it could generate $9.4 billion in revenue by the final year. If it's still trading at 17x sales by then, it could be worth $160 billion.
But that would still make it much smaller than today's Tesla -- which is expected to generate $100.3 billion in revenue this year. Between 2022 and 2025, analysts expect Tesla's revenue to rise at a CAGR of 25% and reach $160.6 billion. In short, there's no viable way for Nikola to become more valuable than Tesla by 2030.
What should Nikola's investors focus on?
Instead of dreaming about Nikola's chances of becoming the next Tesla, investors should focus on the company's near-term 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, and is expected to post a net loss of $655 million for the full year. Those grim numbers suggest Nikola might not even survive long enough to ramp up its production of BEVs and FCEVs.
To generate more cash for its current quarter, Nikola sold $100 million of its shares at a discount to its trading price in a new public offering, liquidated its battery pack maker Romeo Power, divested its stake in its European joint venture with Iveco, and laid off over a fifth of its workforce. A recent securities rule change in Delaware also clears the way for Nikola to double its total number of shares from 800 million to 1.6 billion so it can raise more cash through stock sales.
Investors should see if those moves will boost its liquidity in its upcoming second-quarter earnings report on Aug. 4. If they do, potential investors can focus on its longer-term catalysts -- including its planned launch of its first FCEV in the third quarter, a recently approved $42 million grant to fund its construction of six hydrogen stations in Southern California with its partner Voltera, and a deal with BayoTech to supply up to 50 FCEVs to the hydrogen fuel and transport equipment company over the next five years.
All of those positive developments could help Nikola scale up its FCEV business as it ramps up its production of BEVs. It might not ever evolve into the next Tesla -- which also recently expanded into the electric semi-truck market -- but it could still generate big multibagger gains if it successfully scales up its business.
