How can we forget the revenge of the SPACS of 2020? After all, there was Nikola Motors. It peaked at a ridiculous price of $79.73, instantly making its CEO a multi-billionaire. Never mind that they have no revenue and no product yet.
It’s the year of rainbow investors on Robinhood, after all. Amid the surge on Tesla’s stock in mid 2020, quite a few related stocks have gone up as well including $NKLA, $NIO, $SOLO, $IDEX, $BLNK, $ADOM, $SPAQ and so many others. However Nikola Motors might be the most speculative of them all.
Back in June, short seller Andrew Left of Citron Research said that the party’s over, and that he expects Nikola Corp. to fall 40% to $40 over the next month. So one month later, guess what Nikola Motors price is today? It’s $41.78 after hours, so what happened?
Nikola’s Stock $NKLA is Falling Fast in the 2nd Half of 2020
So what is Nikola and where does this hydrogen hype come from? Nikola Corporation is an American alternative energy vehicle design and manufacturing company based in Phoenix, Arizona, where it also has its research and development operations. It was founded in 2014 in Salt Lake City, Utah. The company is named after inventor Nikola Tesla.
What is a SPAC? A special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Also known as “blank check companies” SPACs have been around for decades. In 2020, we are seeing a surge of speculative SPACS, especially in the EV sector.
We knew this was coming. Analysts at J.P. Morgan in a note last week warned about a potential stock pullback as more of the shares of the special purpose acquisition company (SPAC), or blank-check company, that merged with Nikola become freely tradeable.
After just a few weeks of trading, Nikola’s stock ($NKLA) became a favorite among millennials. But all that trends on Robinhood is not always good for the stock’s performance. In fact the two are inversely correlated. The more it trends the more it attracts short sellers. You made a small fortune if you shorted $NKLA in recent times.
The Hype on SPACs Should Brace Itself
Nikola is bullish on itself. It seeks to provide zero-emissions transportation and infrastructure solutions. Its potential product lineup includes battery-electric and hydrogen-electric class 8 commercial trucks, off-highway vehicles and watercraft. The problem? This stock was doomed to go down, a lot. The conversations around it are also getting rather bloody.
Deutsche Bank analyst Emmanuel Rosner initiated coverage of Nikola in a note on Thursday with a hold rating and a price target of $54, slightly below the stock’s closing price ($54.58) on Wednesday. The real problem is on Friday $NKLA filed for stock sales relating to warrants.
This will mean come Monday it will go down a lot. Writing a blank check to a blank check company maybe isn’t the smartest idea?
Deutsche warned that while Nikola’s story sounds good, investors are taking on a “large execution risk” with a revenue-less electric truck maker that has yet to make a single truck. In the best case scenario, Nikola could well sell over 15,000 trucks a year by 2025, generating revenue of $4.6 billion per year. However in the real world, it will be swarmed with competition on all sides.
The stock has quadrupled this year so is highly likely to crash to more realistic (if speculative) levels. Right now, Nikola doesn’t have any revenue at all, and that makes it a risky bet. I have covered Fisker ($SPAQ), Hyliion ($SHLL) and studied the partnerships that are coming in the automotive industry and it’s not just Tesla that’s their competitor. That Nikola Motors will be able to execute and get out unscathed in the hype is highly unlikely.
Even Analysts Aren’t Getting $NKLA Right
In a note last Tuesday morning, RBC auto analyst Joseph Spak initiated coverage on Nikola with the equivalent of a hold rating and a price target of $46. The reality is next week we are likely to see $NKLA much lower than that. Even if you admire the future of hydrogen, you have to take notice.
On the one hand, its plan to offer hydrogen fuel-cell trucks in a lease package that includes refueling at Nikola-owned stations is a promising one that could spur wider adoption. However, there are a lot of buts.
Firstly the company is purely hot air at this point. Nikola is more like a business plan than like a business. The company has no revenue and won’t until late next year at the earliest, and its technology — lower-cost fuel cells and breakthrough battery chemistry — has yet to be tested in the real world. That’s a very dark-edge SPAC if ask me, bordering on fraudulent speculation.
My price target for $NKLA is $26 by the end of 2020. Nikola has promised to reveal more details on its products, including its much-talked-about Badger pickup, at an event in Phoenix in early December. Trevor Milton thought he was the next Elon Musk for a while there. What a surely trustworthy dream for investors to pin their hopes on.
I’ll sooner see automated (autonomous) trucks disrupt the trucking industry than I’ll see this Nikola Motors approaching Tesla in terms of success.