What happened
Shares of Nikola Corp. (NKLA -4.89%) fell more than 10% this week, according to data provided by S&P Global Market Intelligence. The troubled automaker, which focuses on electric and hydrogen fuel-cell vehicles, is getting slammed to start October after its shares soared last month. A declining stock is likely due to investor concerns over deteriorating demand for electric vehicles (EVs) in the United States, with market leader Tesla reporting disappointing third-quarter delivery numbers.
So what
Nikola had no major news this week, so it is likely the stock is falling due to reports from competitors. Rivian Automotive reported 15.5 thousand deliveries in Q3, which apparently was below investor expectations. Its stock is down 22% this week.
More importantly may be the weak delivery numbers that Tesla reported for Q3. The company delivered 435 thousand vehicles over the last three months, missing analyst expectations for the period. Today, it dropped prices once again on its mainline models. Pricing pressure and weak delivery numbers are making investors nervous about the EV market at the moment, which is likely bringing down Nikola shares.
Nikola is not in the consumer EV space, as it manufactures semi-trucks for commercial customers, but that doesn't matter much when investors decide to sell off an entire sector. Over the first six months of this year, Nikola delivered just 76 vehicles to consumers, making it much earlier in its manufacturing ramp compared to even Rivian but especially Tesla. If demand for EVs is weakening, the company may not have much of a customer base to sell to once (or if) it ever starts producing thousands of trucks each year.
Now what
Nikola shares soared over 100% in August and early September due to bullish sentiment, but the reasons for this are unclear. The company has not shown that it can generate a profit or grow at a sustainable rate. Maybe it is because the stock has a short interest of over 20%, which can lead to wild swings in the share price.
Don't get fooled by the recent price jumps. This is a bad business that has a long way to go before generating a profit. In Q2, the company generated just $15.4 million in sales and posted an operating loss of $169 million. That is an operating margin of negative 1,000%. Nikola only has $226 million in cash on its balance sheet. Unless it can magically ramp up its production within the next few quarters, investors in Nikola are headed for more pain. No wonder shares are off 98% from all-time highs.