Stock Analysis & Ideas

Nikola Stock: Miles to Go Before it’s a Buy, Says Analyst

Story Highlights

Despite a solid Q2, Nikola has miles to go before it recovers from its shaky past. The company has a few upsides, which can accelerate its growth if opportunities are effectively utilized.

Electric vehicle (EV) manufacturer Nikola (NKLA) recently posted better-than-expected Q2 results. However, after analyzing the company’s quarterly details, developments, and outlook, Deutsche Bank analyst Emmanuel Rosner decided to remain on the sidelines, with a Hold rating, and wait for more good news to reconsider his stance on whether this stock is a Buy.

Does Nikola Have a Future?

Along with battling high input costs, Nikola has been going through battery pack and other part shortages, especially in its battery electric vehicle (BEV) truck. In Q2, the company missed its own delivery expectation of BEV and expects to be near the low end of its delivery target for the full year.

Interestingly, Nikola, however, expects to deliver around 65 or 75 units of BEV in Q3, meaning that it should ideally be looking at delivering more than 180 units in Q4 to reach the low end of its full-year target of 300 units. This will be a huge sequential growth if it materializes.

Although Rosner is skeptical of a jump like this, given the headwinds, he does acknowledge that the company “will have better visibility to module and pack supply,” supported by its acquisition and integration of energy technology firm Romeo Power.

Rosner expects Nikola to face diseconomies of scale in Q3 with its new products, given the rising input costs and supply chain snags. However, this situation should improve slightly in Q4. Having said that, the analyst does not see much room for gross margin improvement this year and doesn’t “expect full-year gross margin to reach the positive territory until 2024.”

Again, looking at Nikola’s financial situation, Rosner was not encouraged. “Separately, we still worry about Nikola’s capital needs in 2023 and beyond, as it will likely require more capital raise ($550m-650m) this year to reach its year-end liquidity target of $900m-$1bn following its recent acquisition of Romeo Power,” he observed.

However, Rosner is not all negative about the company’s prospects. Praising Nikola’s operational improvement, Rosner noted that the company’s focus on increasing its production volumes, signing partnership deals, and fuel cell EV (FCEV) validation is keeping him a keen follower of the stock.

Also, Rosner increased his 2025 revenue expectation from $2.1 billion to $2.5 billion. This has led the analyst to raise his price target from $7 to $8.

Is NKLA a Good Stock to Buy Now?

Wall Street analyst consensus prefers to wait for a better entry/exit point for NKLA. The consensus rating on Nikola is a Hold, which is based on four unanimous Hold ratings. Nikola’s average price target of $8.25 reflects 20% upside potential from pre-Wednesday price levels.

Parting Thoughts

Nikola is expected to continue being weighed down by persistent component supply shortages, high input costs, and other operational setbacks like the first-ever ramping of a new manufacturing plant. The company’s near and mid-term prospects seem shaky, which is why analysts are waiting to get more positive business updates and insights.

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