What happened
Nikola (NKLA +0.00%) is making big gains on Monday. The electric-vehicle (EV) specialist's share price was up 8% as of 10:45 a.m. ET, according to data from S&P Global Market Intelligence.
Nikola is gaining ground following recent filings with the Securities and Exchange Commission (SEC) showing that it expects to complete the sale of convertible debt notes. The new note offering is on track to generate $40 million in new funding.
OTC: NKLA
Key Data Points
So what
Nikola submitted a series of filings to the SEC on Sept. 22 pertaining to its plans to raise capital through the sale of convertible debt notes. These are bonds that grant the holder a 5% annual yield and come with the option of being converted into stock if Nikola wishes upon completion of the holding term.
The notes come to maturity on Sept. 22 next year, which means that those holding the notes must be paid back the value of their principal purchase amount and the interest yield by that date. In the event that Nikola fails to make that payment date, the interest rate on the notes will increase to 12.5% per year.
Now what
Nikola has been gearing up to expand the development, manufacturing, and dealership networks for its hydrogen-powered electric trucks. At the same time, funding has remained a key issue for the company. It has recorded a net loss of nearly $387 million through the first half of this year, and pursuing growth initiatives could result in more big losses.
In order to improve margins and get closer to profitability, Nikola will need to scale manufacturing and vehicle deliveries well beyond current levels. The $40 million that the company will likely raise through new convertible notes should provide another much-needed injection of capital, but funding remains a key challenge for the EV specialist.
Nikola has continued to rely heavily on issuing new shares to fund its operations, but this dilutes existing shareholders. Along with the variety of controversies that have surrounded the company since it went public in June 2020, the funding situation is a good reason for investors to be cautious, even if the stock may have the potential for explosive upside at current prices.
