Amidst the euphoria of “record highs” in broader markets during the first half of 2024, a starkly different reality has unfolded for many startup green energy companies. Nikola (NKLA) stands out as a poignant case study, symbolizing the rise and fall emblematic of the electric vehicle (EV) bubble, reminiscent of GameStop’s role in the meme stock mania.
Back in 2020, Nikola rode high on the wave of the special purpose acquisition company (SPAC) frenzy, trumpeting the promise of renewable energy. Surpassing even the market cap of Ford Motor (F) at its peak, Nikola’s ascent served as an ominous harbinger of an impending bubble within the EV industry, despite having yet to deliver any vehicles.
Since that zenith, Nikola’s trajectory has sharply nosedived, with its current market cap languishing below $350 million. The impending release of its Q2 earnings report on Friday now looms large, sparking questions about the viability of NKLA stock amidst the tempestuous stock market.
Nikola Q2 Earnings Preview
In the June quarter, analysts anticipate Nikola to report revenues of $24.6 million, reflecting a 60.5% increase from the same period last year. Notably, the company managed to sell 72 Class 8 Nikola hydrogen fuel cell trucks to wholesale customers during Q2, exceeding its own guidance.
However, the consensus forecast points to a net loss of $120.6 million for Q2, marking a 13.4% year-over-year increase. The landscape of startup green energy companies is dotted with losses and cash burn, driving many to seek refuge in capital markets – a path Nikola has trodden frequently.
Engulfed in a frenzy of share sales, Nikola witnessed a surge in its outstanding share count, setting the stage for a potential dilution of earnings per share whenever profitability beckons.
NKLA is Looking to Spur Volumes
Survival, rather than profitability, dominates Nikola’s current agenda. A recent reverse stock split in June underscored the company’s scramble to meet exchange listing prerequisites. Notably, management appears willing to compromise on pricing to propel initial sales volumes.
During Nikola’s Q1 2024 earnings call, CFO Tom Okray stressed the necessity of scale for achieving profitability, acknowledging the impracticality of optimizing cost structures without a critical mass of volume. Unlike Tesla (TSLA), Nikola lacks the luxury of prioritizing margins over volumes as it grapples with persistent losses and a fragile financial footing.
NKLA Stock Forecast
Despite the shadows looming over Nikola, only a handful of analysts actively track the company, with the majority advocating a “Hold” stance. While the mean target price of $18.01 outstrips Wednesday’s closing figures by over 145%, the stock continues to grapple with skepticism and uncertainty.
Nikola’s pivot towards commercializing its hydrogen fuel truck and establishing hydrogen infrastructure under the Hyla brand represents a strategic shift. Positioned as a frontrunner in green Class 8 trucks in North America, Nikola holds the potential for substantial gains if it can orchestrate successful large-scale truck sales.
Key Risks Nikola Investors Should Watch Out For
However, a labyrinth of risks envelops Nikola, beginning with the imperative need for flawless execution in selling its hydrogen fuel trucks, a technology that has attracted skepticism, including from voices like Elon Musk.
A potential victory for Donald Trump in the upcoming November elections poses another risk, given his energy policy leanings favoring the fossil fuel industry over green energy. Nonetheless, regardless of political outcomes, the inexorable shift towards cleaner fuels persists, albeit subject to policy interventions.
Contending with a fragile balance sheet and incessant cash burn, Nikola grapples with the looming specter of bankruptcy. Against the backdrop of market volatility, financially vulnerable companies may struggle to captivate investors’ interest, despite tempting bargain prices in the equity market.
Although Nikola’s next 12-month price-to-sales multiple appears relatively modest at 1.66x, prudent investors may opt for cautious waters, wary of the Tennessee Waltz that Nikola delicately dances amidst the tumultuous waves of the stock market.