Nikola Stock (NKLA): Should I Buy It Now?

By Amit Chowdhry ● September 10, 2020
  • Should you buy Nikola stock (NASDAQ: NKLA) now? Here is some information to help you decide.

9/14 Update: Nikola responded to the Hindenburg Research report (read more here).

Nikola Corporation (NASDAQ: NKLA) has had an extremely volatile week for its stock price. It surged earlier this week when the company revealed it signed a deal with GM, but then it saw another major decline after a short-seller accused the company of deception. 

On June 4, Nikola went public following a reverse merger with a SPAC. And it has been one of the most actively traded stocks this week. The 52-week range of the stock price for Nikola is $10.27 to $93.99. At the higher levels of the stock price, Nikola was valued more than other major automakers like Ford.

This is an overview of everything that happened this week:

Partnership With General Motors (NYSE: GM) Announced

On Tuesday, Nikola announced a partnership with General Motors Co. As part of the deal, GM took a $2 billion equity stake in Nikola. In exchange for the equity, GM agreed to manufacture and supply components for Nikola’s debut electric pickup truck — which is called the Badger. GM is also going to provide fuel-cell and battery technologies for the Nikola semi-trucks that will be built at a factory based in Coolidge, Arizona.

GM is not actually injecting any cash into Nikola. As part of the deal, GM is going to license technologies to Nikola and manufacture the products. As part of the deal, GM has the right to nominate one director to the company as well.

The cost reductions will also be carried through Nikola’s programs like the Nikola Tre, Nikola One, Nikola Two, and NZT as well. Through the agreement, Nikola will utilize General Motors’ Ultium battery system and Hydrotec fuel cell technology, representing a key commercialization milestone for General Motors.

General Motors is going to be subject to a staged lock-up provision beginning in one year and ending in June 2025. And General Motors will engineer, homologate, validate and manufacture the Nikola Badger battery electric and fuel cell versions.

“Nikola is one of the most innovative companies in the world. General Motors is one of the top engineering and manufacturing companies in the world. You couldn’t dream of a better partnership than this,” said Nikola Founder and Executive Chairman Trevor Milton in a statement. “By joining together, we get access to their validated parts for all of our programs, General Motors’ Ultium battery technology and a multi-billion dollar fuel cell program ready for production. Nikola immediately gets decades of supplier and manufacturing knowledge, validated and tested production-ready EV propulsion, world-class engineering and investor confidence. Most importantly, General Motors has a vested interest to see Nikola succeed. We made three promises to our stakeholders and have now fulfilled two out of three promises ahead of schedule. What an exciting announcement.”

This agreement with Nikola is extending General Motors’ utilization of its fuel cell technology to the Class 7/8 semi-truck market and represents a high-volume commercialization of its leading Hydrotec fuel cell system and complements the company’s battery-electric propulsion. And fuel cells will become increasingly important to the semi-truck market because they are more efficient than gas or diesel. GM also sees additional growth opportunities in multiple transportation, stationary, and mobile-power end markets.

General Motors’ Ultium battery technology roadmap includes silicon anodes and lithium metal anodes — which will improve vehicle range, affordability, and reduced dependence on rare and costly metals. Plus it is already demonstrating automotive-grade durability and significantly higher energy density.

“This strategic partnership with Nikola, an industry-leading disrupter, continues the broader deployment of General Motors’ all-new Ultium battery and Hydrotec fuel cell systems,” explained General Motors Chairman and CEO Mary Barra. “We are growing our presence in multiple high-volume EV segments while building scale to lower battery and fuel cell costs and increase profitability. In addition, applying General Motors’ electrified technology solutions to the heavy-duty class of commercial vehicles is another important step in fulfilling our vision of a zero-emissions future.”

As of June 3, CNH Industrial NV’s Iveco held a 6.7% stake in Nikola. And Iveco has an agreement in place to set up a facility for Nikola in Germany to build battery-electric semi-trucks.

Short-Seller Accuses Nikola Of Deception

Nikola’s stock price dropped over 10% after Hindenburg Research published a report about the company lying about its technology. It’s worth mentioning that Hindenburg Research reportedly owns a short position in Nikola’s stock price so it would benefit from a decline in the share price of the company, according to Bloomberg. The lengthy report published by Hindenburg is detailed with screenshots and information questioning the integrity of Milton.

“We have gathered extensive evidence—including recorded phone calls, text messages, private emails, and behind-the-scenes photographs—detailing dozens of false statements by Nikola Founder Trevor Milton. We have never seen this level of deception at a public company, especially of this size,” says the Hindenburg Research report.

What are the accusations that Hindenburg Research is presenting? Hindenburg Research alleges that Nikola’s electric and hydrogen-fuel-cell vehicles were designed in a way to make products appear fully functional, but do not actually work. And Hindenburg Research claims Nikola staged misleading videos and has been telling “dozens of lies” about the capabilities of its products and the partnerships in place.

“Nikola has been vetted by some of the world’s most credible companies and investors,” said Nikola in response to the report in a statement to Bloomberg News. “We are on a path to success and will not waver based on a report filled with misleading information attempting to manipulate our stock.”

Milton said that the report “lies” and was a “hit job.” Milton said that he would provide a detailed report to address the “one-sided false claims.”

In its report, Hindenburg stated that it believes GM was pressured to make a deal with Nikola due to pressure from a “relentless Tesla rally.” Here is what the report says:

“Unlike Nikola, Tesla develops extensive proprietary technology, which cuts many traditional automakers and suppliers out of its picture. The astronomical rise in Tesla’s valuation has pressured other auto companies, like General Motors, to unlock similar value from the ongoing EV wave. In August 2020, analysts from Deutsche Bank and Morgan Stanley pressed General Motors to spin off its electric vehicle business, stating that such a move dedicated to EV could be worth ‘up to $100 billion’.”

How did GM respond to these claims? GM said it stands by Nikola’s capabilities in creating value.

“We stand by the statements we made in announcing the relationship,” said GM spokesperson Jim Cain in an email to Bloomberg.

Here are some of the tweets that Milton wrote in response to the report:

 

Milton Joins Forbes’ 400 Billionaires List

This week, Milton was officially added as a member of Forbes’ 400 billionaires list with a net worth of over $5 billion. Some of that wealth was spent buying a ranch in Utah and he also donated millions of shares to early employees at the company.

The 2,000-acre ranch that Milton bought in Utah was priced at about $32.5 million. That was the most expensive home ever sold in the state of Utah.

His wealth is largely tied to the surge in Nikola’s stock price. Along with being the Nikola’s largest shareholder, Milton was also the company’s only revenue-paying customer in the second quarter.

Nikola Stock (NASDAQ: NKLA) Performance:

Here is how the Nikola stock performed over certain periods of time:

1-Day: -11.33%

5-Day: -4.7%

1-Month: -16.2%

6-Month: +219.5%

YTD: +264.1%

1-Year: +268.3%

2-Year: +291.8%

Since Public Debut: +292.2%

Note: A portion of these numbers are based on the stock price of VectoIQ Acquisition Corp. (VTIQ) prior to its reverse merger with Nikola

Nikola Stock (NASDAQ: NKLA): Should I Buy It Now?

The Nikola stock price has been a bit of a rollercoaster since it went public. One day it could be the best performing stock in your portfolio for the day and the next day it could be one of the stocks that saw the largest drop. I would recommend Nikola if you are a thrill-seeker. But if you prefer to have stocks in your portfolio with more consistent and predictable growth, I would recommend you look elsewhere.

In terms of analyst recommendations, I noticed in a consensus report that 2 analysts are saying buy and 3 analysts are saying neutral for Nikola’s stock.

Recently, RBC Capital analyst Joseph Spak increased Nikola’s price target to $49 from $46. But the company is keeping a Sector Perform rating on the shares. 

Spak said that the company’s partnership with GM helps de-risk the company’s business model with its Badger contract manufacturing agreement. Spak noted that about two-thirds of Nikola’s major milestones expected by year-end are now complete with “additional positive catalysts” expected in the form of a “hydrogen station partner and Nikola World.”

Personally, I’m interested in the long-term potential of Nikola so I plan to buy-and-hold shares in the company over time at various price points in the long-term.

Disclosure: I own a few NKLA shares. I wrote this article myself and I do not have any business relationship with any company whose stock I write about. I am not a financial advisor and all articles are my opinion. You should do your own due diligence and consider talking to a financial professional before investing.