Is Nikola the Next Tesla, or a Cheap Knock-Off?

Read The Full Article On: Financehttps://finance.yahoo.com/news/nikola-next-tesla-cheap-knock-202508681.html

It’s often said that, “imitation is the sincerest form of flattery.”


Tesla (TSLA) has been incredibly successful over the past decade, transforming itself from a niche manufacturer of an expensive, hand built electric roadster to a truly mass-market manufacturer of electric automobiles – and a $275 billion market capitalization. The return to shareholders who bought Tesla shares at the IPO in 2010 and held them until now is an astonishing 7,700%!


It’s no wonder that an achievement like that would spawn imitators who hope to replicate that kind of appreciation.


Upstart Nikola (NKLA) – which became a public company recently through a merger with a Special Purpose Acquisition Company (SPAC) – has captured the imagination of speculators and day traders who took its shares from a low near $10 to an intraday high of $93.99 and then back closer to Earth over the course of the past four months. NKLA currently trades in the mid-$30/share range.


All that volatility stands to reason. Who wouldn’t want to get in on the ground floor of the “Next Tesla?”


In addition to the fairly blatant rip-off on the name of the company (Nikola being the first name of the electrical engineering pioneer and namesake of the automaker Tesla), NKLA seems to be intentionally positioning itself – at least in terms of image – as the heir-apparent in the alternative vehicle industry.


There’s a charismatic founder* and Chairman, Trevor Milton. There’s the company’s plan to produce zero-emissions Semi trucks and passenger pickups. (NKLA’s vehicles will purportedly use both hydrogen fuel technology and electricity.) And recently, there was one more interesting detail in the company’s first report as a public company – revenue from “Solar revenues.”


(* Elon Musk is often mistakenly referred to as the “founder” of Tesla, though he did not in fact actually start the company. Musk joined the company founded by Martin Eberhard and Marc Teppering – though Musk has been the CEO, largest shareholder and the public face of the company for most of its existence.)


Nikola does not currently produce or sell any of the products it plans to bring to market. Therefore, on its first income statement, sales and cost of goods sold were expected to be zero. The bulk of the “earnings” were simply R&D costs and Selling, Administrative and General expenses. Those two did make up the vast majority of the company’s $86 million dollar reported loss, but there was also one puzzling item – a $6,000 gross profit on $36K in “Solar revenues” coupled with “$30K in “Cost of solar revenues.”


Obviously $6K is completely negligible in the scope of $86 million in expenses, but it left sharp-eyed observers asking, “what solar equipment?” Nothing in the company’s previous releases or on its (very slick and well designed) website references solar equipment.


Dig a little deeper in the 10-Q filed with the SEC (but conspicuously not in the official investor presentation posted to NKLA’s investor relations site) and you’ll find that that revenue was attributed to, “the provision of solar installation services to the Executive Chairman, which are billed on a time and materials basis.” It appears that Milton had the company purchase and install solar equipment on a personal residence.


It doesn’t make much sense that a person who’s now personally worth somewhere around $5 billion – thanks mostly to his 40% stake in NKLA – would even bother to run a $36K solar installation through his (non-solar) company. Unless he was simply eager to add that revenue line in order to give investors the impression that the company is also in the solar business – just like Tesla is with its SolarCity division.

If you just read the top of the income statement and the company’s own release, you might certainly get that impression.


Whether NKLA ever becomes as big as TSLA remains to be seen – though given that there are only 18 listed companies right now with market capitalization of more than $275B, the odds of that happening probably aren’t great.


Nikola an interesting story and providing a lot of fun for the day-trading crowd right now, but it’s definitely much too early to call the company the “next” anything.  

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