Nikola (NKLA 7.23%) attracted a stampede of bulls when it went public by merging with a special purpose acquisition company (SPAC) on June 4, 2020. The electric semi-truck maker's stock opened at $37.55 on its first trading day, then more than doubled to its all-time high of $79.73 a mere five days later.
But today, Nikola's stock trades at just $0.75 a share. A $2,000 investment on its first trade would have briefly blossomed to over $4,200 before withering to just $40. Let's see why Nikola's stock collapsed and if there's any hope for an eventual recovery.
Image source: Nikola.
Why did Nikola become a penny stock?
Nikola develops two types of electric semi-trucks: battery-powered electric vehicles (BEVs) and hydrogen-powered fuel cell electric vehicles (FCEVs). Its core strategy is to ramp up its production of BEVs and eventually start selling FCEVs.
Prior to going public, Nikola said it could ship 600 BEVs in 2021; 1,200 BEVs in 2022; and 3,500 BEVs in 2023. It also aimed to deliver 2,000 FCEVs in 2023. But in reality, it didn't ship a single BEV in 2021 and only delivered 131 BEVs in 2022. It only delivered 79 BEVs in the first nine months of 2023 and hasn't even shipped its first FCEV yet.
Nikola initially blamed that sluggish start on supply chain constraints and macro headwinds, but a series of battery fires over the past year also forced it to recall most of its BEVs and suspend its sales of new vehicles. Despite all those setbacks, the company claims it can still ship its first FCEVs by the end of this year.
Unfortunately, Nikola's constant management changes, deteriorating balance sheet, and ongoing dilution don't inspire much confidence in its future. Its founder Trevor Milton was convicted of securities and wire fraud last October for misleading investors with his pre-merger forecasts, and the company is already on its fourth CEO in as many years. Its CFO also recently stepped down after spending just nine months on the job.
Nikola has been cutting costs to stay solvent, but it ended its third quarter with just $363 million in cash and equivalents. That's a dire situation for a company that racked up a net loss of $813 million in the first nine months of the year.
To raise more cash, Nikola doubled its share count over the past year so it could sell more shares through secondary offerings. On Dec. 6, it announced another offering of $100 million in common shares and $200 million in convertible notes.
Therefore, it's easy to see why Nikola's enterprise value shrank from its peak of $28.7 billion to just $680 million today. But even at these depressed levels, its stock still looks expensive at 22 times its trailing-12-month sales of $31 million. By comparison, Tesla -- which recently launched its own electric semi-truck -- trades at just 9 times sales.
Can Nikola surprise the bears with an 11th-hour recovery?
Nikola has some serious problems, but the bears might be getting too greedy by shorting 19% of its outstanding shares as of Nov. 14. Meanwhile, its insiders actually bought 575,350 shares over the past three months but didn't sell a single share.
That high short interest and warmer insider sentiment suggest that any positive news about Nikola could spark a short squeeze. If Nikola successfully completes its recall, resumes its BEV shipments, and rolls out its first FCEVs, investors might grow a bit more optimistic about its future. It might even become a tempting takeover target for a larger automaker.
But for now, the odds simply aren't in Nikola's favor. It hasn't proven it can get its production back on track yet, and Tesla's Semi could pull away a lot of its potential customers. Nikola's long streak of broken promises, jarring management changes, and constant dilution all suggest its stock could easily go to zero instead of revisiting its all-time highs.
