Investor excitement surrounding Nikola Corporation (NASDAQ: NKLA) reached a fever pitch on Wednesday as the stock price surged by more than 12%. This surge comes as investors are gripped by the fear of missing out (FOMO) on potential gains. The shares skyrocketed to a peak of $1.03, marking the highest level since May of this year. Notably, the stock has rebounded by approximately 50% from its lowest point earlier this year.
Is NKLA a good investment?
Nikola Motors, a renowned company engaged in the manufacturing and sale of large trucks to various industries such as deliveries and consumer staples, has already commenced the sale of its battery electric vehicles. While the trucks have achieved considerable success, the company has made a strategic decision to shift its business model.
In an official statement, Nikola Corporation revealed its decision to concentrate on hydrogen-powered trucks, which offer superior features compared to battery-electric alternatives. Notably, hydrogen trucks boast a faster refueling time in comparison to battery-powered trucks, which can take hours to charge.
Moreover, hydrogen is remarkably lightweight when compared to batteries, enabling hydrogen trucks to carry larger payloads and travel longer distances. Conversely, battery trucks, like those produced by Tesla, are limited to transporting lighter materials and products.
However, Nikola faces the challenge of an underdeveloped hydrogen infrastructure, which impedes its potential for international success. Consequently, the company is focusing primarily on the North American market, having recently divested its European business to Iveco.
Nikola is a cash incinerator
Another obstacle for Nikola Corporation lies in its substantial cash burn rate. In the most recent quarter, the company generated $11.1 million in revenue while incurring costs exceeding $44 million. Consequently, Nikola suffered a net loss of over $169 million, bringing its cumulative net loss to almost $2 billion over the past ten quarters.
Furthermore, Nikola’s balance sheet reveals a troubling state of affairs. While the company possessed over $136 million in the last quarter, this figure is lower than the $236 million recorded in the December quarter and the $319 million in the previous quarter.
Consequently, this pattern suggests that Nikola will require additional capital as it endeavors to ramp up production. Similar to other electric vehicles manufacturers like Rivian and Lucid, scaling up production proves to be a costly endeavor. Notably, Nikola’s outstanding shares have skyrocketed from 60 million in 2018 to over 475 million at present.
Looking ahead, Nikola aims to achieve profitability measured by earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2025. However, this objective necessitates raising additional capital, resulting in further dilution for the company.