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The one-time SPAC darling NKLA stock is falling apart
By Tezcan Gecgil, InvestorPlace Contributor Jan 8, 2021, 7:54 am EST
Nikola (NASDAQ:NKLA) stock had a wild ride in 2020. NKLA stock, which saw a record high of $93.99 in early June, is currently hovering around $18.
Source: Stephanie L Sanchez / Shutterstock.com
In other words, $1,000 in the shares of the electric vehicle (EV) maker at that top level would now be worth a little less than $200.
Phoenix-based Nikola went public via a special-purpose acquisition company (SPAC) merger on June 4. Through a reverse-merger with VectoIQ Acquisition Corporation, a “blank check” publicly-traded SPAC, Nikola started trading on the NASDAQ.
Most SPACs, like VectoIQ Acquisition Corporation, initially trade around $10. When a “rumor” or public news of a potential reverse-merges hits the wires, the stock price starts its run-up. In fact, by June 4, the first day of trading, NKLA stock was already around $35.
Today’s article will remind InvestorPlace.com readers what happened to Nikola shares over the past six months. Such a review is likely to show that the stock’s future is not bright.
Therefore, those investors who have any paper profits left in the shares could consider taking them. Others who are interested in buying shares of EV makers should potentially consider other companies. In other words, we’d not invest in NKLA stock at this point, unless there is a fundamental change in the company’s prospects.
The NKLA Stock Rollercoaster Ride
As markets started recovering from their spring 2020 lows, investors’ risk appetite for SPACs, as well as their appetite for electric vehicle stocks, increased significantly. For many, NKLA stock combined both themes under one umbrella. They wondered if Nikola could become the next Tesla (NASDAQ:TSLA).
The press release issued by Nikola on June 3 had a great number of forward-looking statements that many on the Street were ready to hear.
The statement claimed the company had raised enough capital for production, that pre-orders indicated as much as a $10 billion revenue potential. It also said Nikola would build out a nationwide hydrogen network that would be the largest in the world and that it would start generating revenue this year.
Trevor Milton founded the company in 2014, Nikola was (and still is) a pre-revenue business. When he was still the company’s chairman, Milton used Twitter (NYSE:TWTR) to generate buzz that Nikola would soon take reservations for the Badger, a new electric pickup truck.
That was on June 9, and it set NKLA Stock soaring to its record high $93.99.
However, the rest of the year meant stomach-churning news for shareholders in the EV group. First came the good news regarding a potential partnership with General Motors (NYSE:GM). GM would take an 11% stake, worth about $2 billion at the time, and allow Nikola use of it’s Ultium battery and Hydrotec fuel cell technology. As part of the deal, GM was slated to manufacture the Badger.
Before September was over, Milton resigned from his role and left the company amid fraud allegations, voiced by short-selling research firm Hindenburg. Late November saw GM put the brakes on the expected deal, too, leading to a sell-off in Nikola shares.
NKLA stock took another beating in December when its collaboration with Republic Services (NYSE:RSG) to develop electric garbage trucks came apart.
The Bottom Line on Nikola Stock
As 2020 progressed, Nikola’s prospects continued to weaken despite leadership changes at the company. Even with all of its challenges, this pre-revenue company still has a market capitalization of over $5 billion. Yet, there is no prospect of revenues to justify such valuation.
By comparison, market caps of Fiat Chrysler Automobiles (NYSE:FCAU) and Ford(NYSE:F) are about $29.5 and $33 billion, respectively. Similarly, the market cap for UK-based Aston Martin Lagonda stands at 2.1 billion pounds sterling (or $2.9 billion).
Unless Nikola’s management is able to get the company on the road to earning revenues, I regard it as a risky investment.
If you’d like to ride the EV and the alternative energy wave without the volatility of NKLA stock, you could buy an exchange-traded fund ETF). Examples include the ALPS Clean Energy ETF (CBOE:ACES), the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), the SPDR S&P Kensho Clean Power ETF (NYSEARCA:CNRG), or the SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL).