Stock Analysis & Ideas

Nikola: Making Progress, but Execution Remains Key, Says J.P. Morgan

Nikola (NKLA) investors finally have something to cheer about. On Wednesday, at the company’s Analyst Day, the EV truck startup announced that, as planned, production of the Tre battery electric truck had begun at the Coolidge, Arizona manufacturing facility on March 21.

The company also said it expects to deliver 300 to 500 Tre semi-trucks this year and that by mid-2023, manufacturing for the European market will go ahead at the German facility.

J.P. Morgan’s Bill Peterson attended the event, went for a ride in a Tre FCEV truck and took the Tre BEV truck for a test drive. The analyst came away with a “favorable view of the vehicle’s performance and seemingly improving manufacturing readiness.”

The truck’s performance aside, Peterson believes there is strong customer interest in Nikola’s offerings. The series production has incorporated “positive learnings” from tests with main customer TTSI. And to draw customers in the U.S. and leverage JV partner Iveco’s existing presence in Europe, Nikola anticipates bringing in additional dealer and service partners. Furthermore, to provide fleets with en-route and depot charging flexibility, Nikola is also going after the mobile charging opportunity. “Overall,” said Peterson, “with longer range than other BEVs, we sense that customer demand thus far is high.”

Another positive takeaway is that the hydrogen ecosystem is “evolving.” This could provide the company with an opportunity in an emerging market and could be a “key differentiator.”

However, cash burn “remains high” and to fund 2023 programs, later this year, Nikola will need to raise “significant capital.” Roughly ~$650 million, per management.

While Peterson notes the company is “prudently managing spending,” it remains to be seen whether Nikola can meet its other targets, which will be key for investor sentiment.  

“More broadly,” the analyst summed up, “across the company’s multiple efforts: product development, go-to-market, manufacturing, hydrogen strategy – executing is key, especially ahead of a dilutive capital raise.”

For now, Peterson’s rating stays a Neutral (i.e., Hold) while the $10 price target suggests shares will stay rangebound for the foreseeable future. (To watch Peterson’s track record, click here)

All in all, the Street is currently taking a cautious approach to NKLA. The Hold consensus rating breaks down into 6 Holds and a single Buy. The Street’s average target is only slightly higher than Peterson’s; at $10.43, the figure leaves room for modest growth of 5% over the coming year. (See Nikola stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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