Stock Analysis & Ideas

Battered Nikola Stock Jumps on Good News

Nikola (NASDAQ: NKLA) has been languishing on the stock market ever since going public almost two years ago. The stock price has depreciated around 85% from its highest price that was achieved on June 9, 2020, a few days after its IPO.

Last year, former chairman Trevor Milton was charged with fraud, having been found to lie about “nearly all aspects of the business” in order to push stock sales. Investors have had difficulty reestablishing trust in the company ever since then.

With Nikola managing to swim out of legal hot waters towards the end of 2021, market watchers had one question in mind; can the company regain its lost ground?

Regaining Foothold Slowly

Patient investors got an opportunity to rejoice Thursday, when the company announced that the production of revenue-generating trucks has already started, and showcased its progress on hydrogen infrastructure. The stock surged 5.7%.

The company’s trial and testing of its BEV (battery electric vehicle) and fuel cell electric vehicle (FCEV) products has already started. The company intends to bring the Tre BEV — its approved zero-emission vehicle — to the U.S. market during the second quarter of 2022, and to Europe by the third quarter of 2023.

In December 2021, Nikola delivered its first Tre BEV pilot trucks to Total Transportation Services, and bagged a major order from Heniff Transportation Services, thrusting the company into the limelight, but for the right reasons this time.

So far this year, Nikola’s heavy-duty Tre BEV trucks have received orders from the likes of USA Truck, Saia LTL Freight, and Covenant Logistics Group.

In January, Nikola landed a multi-year deal with Proterra for Tre BEV and Tre FCEV to be powered by Proterra battery technology. The first product of this deal is expected to be ready in the fourth quarter of 2022. 

Thus, it looks like the company is trying its best to make a comeback.

More to Overcome

Nikola still has a long way to go. We still don’t know whether the trucks will pass the testing phase with commercial customers. Nor do we know whether Nikola will be successful in keeping up with follow-up orders, given the persisting global chip shortage and prioritizing of the electrification of lighter vehicles over heavy-duty ones.

Moreover, two years of litigation and the legal settlement have dented the company’s financials.

Intense competition from first movers like Tesla (TSLA) and other strong contenders like Nio (NIO) is expected to be an overhang as well.

Also, the company is still far from generating meaningful revenues through mass production.

Expert’s Cautious Stance

JPMorgan analyst Bill Peterson thinks Nikola still has work to do. He does see upsides to the business; for instance, long-term margin growth opportunities once the supply constraints ease.

He is also upbeat about the company’s focus on the production and testing of Tre BEV and intention to cut battery costs over time. Peterson also believes that the parts of the business focused on hydrogen will drive long-term growth.

Yet, he still believes that despite executing its operations well at this point, this might not be the best time to buy or sell off NKLA shares. With these observations, Peterson maintained a Hold rating on the stock, with a price target of $10.

Wall Street agrees with Peterson and maintains a cautious stance, with a Hold consensus rating based on one Buy and eight Holds. The average Nikola price target is $11.

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