Nikola Corporation (NKLA -8.92%) is on a bold mission to pioneer solutions for a world free of carbon emissions. The company has created trucks powered by batteries and hydrogen fuel cells and is developing hydrogen refueling solutions to ensure its customers can use that emission-free fuel.
Nikola burst onto the scene in 2020 when it went public via a merger with a special purpose acquisition company (SPAC) in a $3.3 billion deal. The stock's value quickly accelerated to more than $30 billion, eclipsing the value of several traditional automakers. Investors bought into the hype that it would become the Tesla (TSLA 4.34%) of the trucking industry, even though it wasn't generating revenue.
Stock
Shares have since come crashing back down to Earth as investors started to realize the company has a long and challenging road ahead. However, it still has a lot of promise.
That promise has many people interested in learning how to invest in its stock. Here's a step-by-step guide on investing in the emissions-free truck maker and some factors to consider before adding it to your portfolio.
How to buy
How to buy Nikola stock
Anyone can buy shares of Nikola. These four steps will show you how to add the emission-free truck maker to your portfolio.
1. Open a brokerage account
You'll need to open and fund a brokerage account before buying shares of any company. If you don't have one yet, here are some of the best-rated brokers and trading platforms. Take your time to research brokers to find the best one for you.
2. Figure out your budget
Before making your first trade, you'll need to determine a budget for how much money you want to invest. You shouldn't invest money you might need in the next three to five years, like your emergency fund. You'll then want to figure out how to allocate that money. The Motley Fool investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.
You don't have to get there all at once. For example, if you have $1,000 to invest, you might want to begin by allocating that money equally across at least 10 stocks and grow from there.
3. Do your research
It's essential to thoroughly research a company before buying its shares. You should learn about its balance sheet, its competitors, how it makes money, and other factors to ensure you have a solid grasp on whether the company can grow value for its shareholders over the long term.
4. Place an order
Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:
- The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
- The stock ticker (NKLA for Nikola Corporation).
- Whether you want to place a limit order or market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the current market price.
Here's a screenshot of an order page from the five-star-rated Fidelity Investment's trading platform.
Once you complete the order page, click to submit your trade and become a Nikola shareholder. Continue reading to learn more about some crucial factors to consider before investing in Nikola stock.
Should I invest?
Should I invest in Nikola?
An important step in the investment process is to thoroughly research a company before buying shares. This exercise should give you a better understanding of the company and whether it can deliver a strong return for its investors over the long haul. You also might see something in your research that you don't like about the company, causing you to pass on the stock.
To help you get started with your Nikola research, here are some reasons you might want to invest in its stock:
- You believe the company's battery-powered and hydrogen fuel cell trucks could play a big role in helping reduce emissions.
- You think the company can eventually start living up to its promise and deliver accelerated sales growth.
- You believe the company will eventually turn the corner on profitability.
- You're confident that Nikola can continue to raise outside capital from shareholders until it can internally fund its operations with retained cash.
- You firmly believe the stock can deliver market-trouncing returns in the coming years.
- You're fully aware of the risks, including the possibility that Nikola stock could lose all its value if the company files for bankruptcy.
- You don't need to invest in stocks that produce dividend income.
On the other hand, here are some reasons you might decide against buying Nikola stock:
- You're concerned about the company's cash burn and that it could run out of money and declare bankruptcy.
- Given its low stock price, you're worried future cash infusions will significantly dilute existing shareholders.
- You already own one or more electric car stocks in your portfolio.
- You don't think Nikola will ever turn the corner and get on the road to profitability.
- You think the company is more hype than substance.
- You're retired or nearing retirement and need investments that produce income.
- You're concerned Nikola isn't growing its sales or revenue despite reaching the production stage.
- You believe the revolving door in the C-suite is a big red flag -- Nikola has had three CEOs in the past couple of years.
Profitability
Is Nikola profitable?
Looking under the hood at a company's profitability is crucial to investment research. Investors typically want to see that a company is solidly profitable or on the road to profitability. They'd also like to see it on track to grow its earnings in the future. Profit growth tends to be the biggest driver of a stock's price over the long haul.
Nikola was miles away from profitability in late 2024. On the one hand, the company reported the strongest revenue in its history in the second quarter of 2024. The $31.3 million was up an impressive 318% from the prior quarter.
Profitability Ratios
However, the company posted a net loss of $133.7 million. Meanwhile, its loss through the first half of the year was $281.4 million on only $38.8 million in revenue. It has a long road ahead of it before it will start making money.
Nikola is also hemorrhaging cash. It burned through $250 million in cash during the first half of the year, only a slight improvement from the prior year's period, when it used $287 million of cash to fund its operations.
The company's cash burn is forcing it to raise capital to fund its operations. Nikola launched a $160 million convertible notes offering in mid-2024 to help bridge the gap. If the company isn't successful in reducing its cash burn rate and raising additional cash, it might not survive.
Dividends
Does Nikola pay a dividend?
Nikola doesn't make dividend payments to its shareholders and likely won't initiate one anytime soon. As of late 2024, the company was losing money and burning through cash.
ETF options
ETFs with exposure to Nikola
Not everyone has the time to invest in stocks they must manage actively. Instead, they'd rather be passive investors. Exchange-traded funds (ETFs) make it easy to be a passive investor in a company like Nikola.
Exchange-Traded Fund (ETF)
Many ETFs hold shares of Nikola. According to ETF.com, 25 ETFs held 2.1 million shares of the truck maker in late 2024. The Global X Autonomous & Electric Vehicles ETF (DRIV -0.5%) was the biggest holder, at less than 0.5 million shares. The ETF also had one of the highest allocations to Nikola at 0.5%.
Alternative options to consider are:
- Amplify Lithium & Battery Technology ETF (BATT -0.53%): This ETF invests in companies that generate most of their revenue from the development, production, and use of lithium battery technology. Nikola was one of the fund's 90 holdings in late 2024 and had a 0.59% ETF expense ratio.
- iShares Self-Driving EV and Tech ETF (IDRV -0.26%): This fund seeks to invest in companies that may benefit from the growth of electric vehicles, battery technologies, and autonomous driving. Nikola was one of the fund's 49 holdings in late 2024, and the ETF had a 0.47% expense ratio.
Stock splits
Will Nikola stock split?
Nikola hadn't announced an upcoming stock split as of late 2024. The company has not split its stock since going public through a SPAC merger in 2020. It likely won't complete a regular stock split anytime soon. Shares have lost almost 99% of their value since the company's initial public offering (IPO).
However, in 2023, the company received a notice from the Nasdaq Stock Exchange stating that its stock didn't comply with its minimum bid price requirement. Failure to address that problem could have resulted in its delisting from that exchange. That led the company to complete a 1-for-30 reverse stock split in 2024.
Related investing topics
The bottom line on Nikola
Nikola is helping put the world on the road to an emission-free future. The stock could be a big winner if it can deliver on its promise and turn the corner on profitability. However, given its financial situation, the company has a long, challenging road ahead. There's a real risk that the stock could go to zero. Investors must carefully consider the risks before buying shares of the truck maker.
FAQ
Investing in Nikola FAQ
Can you buy stock in Nikola?
You can buy Nikola stock through any brokerage account. The truck maker trades on the Nasdaq exchange under the stock ticker NKLA.
Is Nikola still a good investment?
Nikola's stock got off to a fast start, accelerating in value as investors bought into the company's initial hype of helping decarbonize the trucking sector. However, shares have crashed spectacularly, losing almost 99% of their initial value and falling even further from their peak.
The company faces a challenging road ahead as it works to continue building its truck business at a time when funding is getting harder to find. There's a real possibility the company could run out of money before it turns the corner on profitability, so Nikola isn't a good investment for most people.
It's a very high-risk stock with a low probability of paying off. However, if it can get through this rough patch and deliver on its promise, the stock has the potential to be a big winner. Given its high-risk/high-reward potential, investors who buy shares of Nikola should keep their allocation small enough that they'd be comfortable losing their entire investment, which is a very real possibility.
Does Nikola pay a dividend?
Nikola doesn't pay a dividend. The company can't afford to make dividend payments to shareholders. It's burning through cash and needs to routinely receive cash infusions from investors to continue operating.
