Nikola's (NKLA -6.21%) stock plunged 26% on Aug. 4 after the electric and hydrogen semi truck maker posted its second-quarter earnings report. It generated $15.4 million in revenue, which marked a 15% drop from a year earlier but still exceeded analysts' expectations by $0.5 million. Its net loss widened from $173 million to nearly $218 million, or $0.20 per share, which also cleared the consensus forecast by two cents.

During the quarter, Nikola produced 33 battery-powered electric trucks (BEVs) and shipped 45 BEVs, bringing its year-to-date total to 96 BEVs produced and 76 BEVs shipped. But at the end of 2022, Nikola claimed it could deliver 250-300 BEVs in 2023 -- so it needs to significantly ramp up its production in the second half to reach that goal. The company also plans to start delivering its first hydrogen-powered fuel cell electric vehicles (FCEVs) in September.

That progress is encouraging, but a few red flags also emerged. Do those flaws indicate it's too late to bet on Nikola's long-term recovery?

Nikola's Tre BEV semi truck.

Image source: Nikola.

Nikola's turnaround CEO resigns

The brightest red flag was the abrupt and immediate resignation of CEO Michael Lohscheller, who took the helm in February 2022, due to a family health issue.

During his 18 months as CEO, Lohscheller distanced Nikola from its founder and former CEO Trevor Milton, who was convicted of securities and wire fraud last October for inflating the company's stock price with overly optimistic growth forecasts. Lohscheller also tried to stabilize Nikola's balance sheet and abandoned the bullish estimates Milton had provided prior to merging the company with a special purpose acquisition company (SPAC) in June 2020.

In his final quarter as CEO, Lohscheller boosted Nikola's liquidity with four drastic moves. The company sold $100 million of its shares at a discount to its trading price, liquidated Romeo Power (the battery pack maker it acquired less than a year ago), sold its stake in a European joint venture with Iveco, and laid off nearly a quarter of its workforce.

That's why Nikola ended the second quarter with $226.7 million in cash and equivalents, compared to just $121.1 million in the first quarter. Lohscheller's polarizing plan to raise more cash by doubling the company's existing share count -- which would enable it to raise fresh cash as needed through fresh stock sales -- was also recently approved.

Under Lohscheller, Nikola finally ramped up its production of BEVs and secured a partnership with BayoTech, a producer of hydrogen fuel and transport equipment, to buy up to 50 FCEVs from Nikola over the following five years. The California Transportation Commission also recently approved a $42 million grant to fund Nikola's construction of six hydrogen stations across Southern California with its partner Voltera.

All of those positive developments brought the bulls back to Nikola's stock over the past two months. After dropping to an all-time low of $0.52 per share on June 6, Nikola's stock soared more than 550% to $3.40 per share on Aug. 3.

Even after its post-earnings drop to $2.50 on Aug. 4, Nikola's stock remains more than 380% above its all-time lows. However, it's unclear if investors will stick with the stock after Lohscheller's sudden departure. 

Is the new CEO a step backward?

Nikola's chairman Stephen Girsky, a former General Motors executive, will succeed Lohscheller as Nikola's fourth CEO in four years. But that choice may raise another red flag since Girsky previously launched the SPAC which eventually merged with Nikola.

To many of Nikola's investors today, switching back to Girsky after Lohscheller tried to rectify Milton's mistakes might seem like the wrong move. 

A expensive stock relative to sales

Analysts expect Nikola's revenue to nearly triple to $139 million this year if everything goes right, and for its net loss to narrow from $784 million to $651 million.

However, Nikola still has an enterprise value of $2.4 billion, which values it at nearly 18 times this year's sales. That valuation could also increase significantly if it doubles its share count and sells a large portion of those shares to raise more cash. By comparison, Tesla trades at just 8 times this year's sales and is firmly profitable.

In other words, investors were willing to pay a hefty premium for Nikola when it seemed like Lohscheller's plans were working -- but the valuation could easily collapse if Girsky fails to ramp up Nikola's production of BEVs and deliver its first FCEVs. When I look at all of these formidable challenges on the horizon, I think it's far too late to buy Nikola's volatile stock.