Nikola (NASDAQ:NKLA) shares are on the backfoot once again. The week started off on a bad note for investors as shares crashed after the electric truck start-up announced it was raising much needed cash.
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The company intends to sell up to $325 million in convertible bonds, expecting the initial closing of the note offering will generate roughly $125 million.
Selling convertible bonds has the potential to decrease the value of a company’s stock given the sale can lead to a larger quantity of outstanding shares, thereby resulting in share dilution. Evidently investors had this issue on their minds when sending shares ~23% lower on Monday.
The raise also comes hot on the heels of the company having to recall around 209 Class 8 Tre battery-electric vehicles as a precautionary measure after a truck caught fire at the company’s Phoenix, Arizona facility. An investigation found that the fire was down to a coolant leak inside a battery pack. In an update, the company said it might not achieve its annual delivery goal now due to challenges stemming from the recent battery-related issue.
Meanwhile, Carey Mendes, who oversaw the branding of the company’s hydrogen segment and was responsible for signing the deal that got financing for up to 50 hydrogen fueling stations, has handed his notice in having only joined the company less than two years ago. Mendes’ exit closely follows that of President and CEO Michael Lohscheller, who stepped down earlier this month due to family health issues.
With the original members of the management team now all gone, Deutsche Bank analyst Emmanuel Rosner says it is easy to understand “investor nervousness around the near-term execution and mid-term targets.” And while the analyst notes that following a Q2 report that showed there is now a heavy focus on reducing quarterly cash burn, he makes the case that it’s hard to get bullish on Nikola right now.
“We will need to see much improved operational execution and evidence of higher truck demand to get more comfortable with the company’s strategy over the coming years,” Rosner said.
Accordingly, Rosner rates NKLA shares a Hold (i.e., Neutral), while his $2 price target suggests upside of 32% from current levels. (To watch Rosner’s track record, click here)
Wedbush analyst Daniel Ives also highlights the company’s efforts to improve its financial standing, although it might be a while until the Street gets more comfortable with the Nikola story.
“With a large focus on reducing OpEx and increasing production, it will take time for Nikola to regain trust in the Street,” said the 5-star analyst, who still remains “confident in the company’s long-term vision.”
Ives also stays on the sidelines for now, maintaining a Neutral rating, although he might as well have said Buy, as his $3 price target implies shares will rise ~99% from current levels,. (To watch Ives’ track record, click here)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
