Nikola (NKLA) is an American corporation involved in creating zero-emission electric and hybrid vehicles, electrical vehicle drivetrains and components, hydrogen station infrastructure, and energy storage systems. The company is based in Phoenix, Arizona.
I am neutral on Nikola Corp as its optimistic growth outlook is offset by its utter lack of scale and profitability, making it too speculative to take a position. (See Analysts’ Top Stocks on TipRanks)
Strength
Nikola Corporation is on its way to delivering its first batch of 50 to 100 Tre battery-electric trucks in the fourth quarter of 2021. In August 2020, the company had a valuation of $13 billion, while its revenue in the first six months of 2020 stood at $80,000.
In September 2020, Nikola also announced a partnership with General Motors (GM). GM would acquire an 11% stake in the company and the right to nominate a member to Nikola’s board. GM also signed an agreement to allow Nikola to use its manufacturing facilities to start producing the Badger electric pickup trucks.
Recent Results
Nikola Corp saw an operating loss of $271.8 million in the third quarter of 2021 compared to an operating loss of $117.3 million in the third quarter of 2020. Net loss was $267.6 million with an adjusted EBITDA of -$85 million and a net loss of $0.67 per share compared to a net loss of $0.21 per share in Q3 2020.
In September, the company announced it was entering into another $300 million common stock purchase agreement with Tumim Stone Capital LLC, which brings the total capital raised from the deal to $600 million. This will allow Nikola to sell shares to Tumim, providing them additional liquidity. The company expects to have access to approximately $800 million of liquidity at the end of 2021.
During the quarter, Nikola also reported it was well on track for the public road release of the Nikola Tre BEV semi-truck in December 2021. The company also announced additional fleet testing customers and more hydrogen infrastructure partners. In the fourth quarter, it also planned to purchase land for its first centralized hydrogen production facility and a commercial gaseous generation station.
Valuation Metrics
Nikola’s stock is tough to value right now as it is not profitable. That said, it is trading at 38.2x on a forward enterprise-value-to-revenues basis. Meanwhile, growth is expected to be incredibly fast, with growth expected to come in at a 5,516% rate in 2022 and net income margins expected to improve from -218,131.6% in 2020 to -318.4% in 2022.
Wall Street’s Take
Turning to Wall Street, Nikola earns a Hold consensus rating, based on four Holds assigned in the past three months. The average Nikola price target of $13.67 implies 45.6% upside potential.
Summary and Conclusion
Nikola operates in a high-growth industry and has ambitious growth plans for scaling to become a major player. That said, it is a very long way away from any meaningful scale, much less profitability, so it is a highly speculative investment at this point. On top of that, Nikola faces significant and growing competition in the space, and Wall Street analysts are unanimously neutral on the stock.
As a result, investors might want to steer clear of this stock until its future prospects become more apparent. As for now, it is simply too speculative to get a good sense of how things will play out for the company.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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