Shares of hydrogen and battery-electric truck maker Nikola (NKLA 7.23%) dropped 10% in December to end 2023 with a steep loss of 59.5%, according to data provided by S&P Global Market Intelligence.
Nikola's order book for its Tre hydrogen fuel cell electric trucks is growing, but a recall of its battery-electric trucks is proving costly at a time when the company is already facing a cash crunch and raising money consistently.
Nikola has plenty of problems at hand
Nikola had previously estimated that it would require $600 million to fund its operations and achieve positive earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2025. Its capital requirement, however, has inched higher to $650 million thanks to its truck recalls.
In December, Nikola announced plans to raise $300 million, partly via a stock issue and partly through senior convertible notes. Since both instruments are dilutive for existing shareholders' wealth, the announcement sent the EV stock crashing.
Nikola had already given investors a glimpse of its struggles when it reported negative revenue of $1.7 million for its third quarter in November. The thing is, although Nikola sold three battery electric vehicles (BEVs) to its dealers, it repurchased seven because of a cancellation of dealer agreements, resulting in a net negative revenue. Nikola's cost of revenue, meanwhile, more than doubled year over year to nearly $124 million.
Most of those costs were related to its battery recalls. Nikola voluntarily recalled 209 heavy-duty Tre BEVs in August on account of faulty battery packs. The truck maker will now replace those packs in a move that could cost the company nearly $62 million. The amount was already included as a warranty reserve in Nikola's third-quarter cost of revenue.
Meanwhile in December, Nikola's founder and former CEO Trevor Milton, who was earlier convicted of wire and securities fraud, was sentenced to four years in prison for defrauding investors. Although Milton is no longer associated with the company, Nikola stock fell after the update and remained volatile throughout the month.
Nikola stock is a risky bet for 2024
Although a recall of its BEVs is proving to be a costly affair for Nikola, the good thing is that the company has started selling its hydrogen fuel-cell electric trucks. It expects to generate $11.3 million to $18.8 million in revenue in the fourth quarter, driven by deliveries of 30 to 50 hydrogen trucks. Nikola's cost of revenue, however, is still expected to be high, which means it could report a big negative gross margin for the fourth quarter and continue to burn cash.
Nikola ended the third quarter with cash and cash equivalents of only $363 million, which is why the company sold stock and convertible notes worth $300 million in December. The trend is likely to continue through 2024, making Nikola an EV stock you may want to avoid for now.
