Saturday, 9 December 2023
by Rose White
Shares of hydrogen and battery-electric truck maker Nikola (NASDAQ: NKLA) plunged this week and were trading 29% lower through 11:30 a.m. ET. Friday, according to data provided by S&P Global Market Intelligence.
The electric vehicle (EV) stock barely made it past the $1 mark earlier this month, but is now exchanging hands for just about $0.76 per share as of this writing. Nikola has consistently banked on stocks and convertible bonds to raise funds over the past couple of years or so. To investors’ chagrin, the company’s doing it — yet again.
This week, Nikola said it will issue stock worth $100 million as well as raise another $200 million through convertible senior notes. While a stock sale dilutes the wealth of existing shareholders by default since their stake in the company falls, a convertible senior note is a double whammy. That’s because senior convertible notes are a type of convertible bond where holders can opt to convert their notes into Nikola shares. If and when they do, it’ll further dilute the wealth of existing Nikola shareholders.
Why is Nikola frequently issuing stock and bonds? The company is grappling with a cash crunch even as it tries to build trucks and fulfill orders. Nikola will use the money from its latest round of stock and bond issues for working capital and other corporate needs.
Nikola reported its third-quarter earnings in November, and although it received more orders, it also posted a wider loss. As of Nov. 2, Nikola had 277 non-binding orders from 35 customers for its Tre hydrogen fuel-cell electric trucks, but all of that buildout will require a lot of money.
Nikola also makes battery-electric vehicles (BEVs), but its plans hit the wall after the company voluntarily recalled 209 heavy-duty Tre BEVs trucks in August because of faulty battery packs and temporarily stalled the sale of new BEVs. Nikola will now replace the packs and expects to start BEV deliveries again in early 2024, but it will also incur nearly $62 million in costs for the recall and repair.
That’s a pretty costly affair for a company that’s already knee-deep in losses. In fact, Nikola generated negative total revenue of $1.7 million in Q3 as it sold only three BEVs but repurchased seven after canceling some dealer agreements. Its net loss widened to $425.8 million in the quarter from around $236 million in Q3 2022.
Long story short, Nikola may be getting truck orders but it is currently in a difficult spot financially, and this week gave investors yet another reason to sell the stock.
Should you invest $1,000 in Nikola right now?
Before you buy stock in Nikola, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nikola wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of December 7, 2023
Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.