Nikola ‘s ( NKLA -0.77% ) On August 9, the stock of the electric semi truck manufacturer increased by 8% following the release of its second-quarter financial results. The company experienced a significant revenue growth of 104% compared to the previous year, reaching $31.3 million, which was $5.1 million higher than what analysts had predicted.
The company reduced its net loss from $139.3 million to $124.5 million, or $2.67 per share, which was $0.06 better than expected. These figures indicate that Nikola’s business is showing signs of improvement, but its stock is still significantly lower than its peak value reached four years ago. Given the volatility of this electric vehicle stock, should investors consider buying, selling, or holding onto it at this point?
Picture credit: Nikola.
Has Nikola started increasing its production?
Nikola manufactures electric semi trucks that are powered by batteries as well as hydrogen fuel cells. The company became publicly traded through a merger. A special purpose acquisition company (SPAC) is a publicly traded company formed for the specific purpose of acquiring or merging with another company within a certain timeframe. In 2020, it confidently forecasted that it would provide 600 electric vehicles in 2021, 1,200 electric vehicles in 2022, and 3,500 electric vehicles in 2023. Additionally, it stated its intention to commence mass production of its fuel cell electric vehicles in 2023 and distribute 2,000 of those vehicles throughout the year.
Nikola did not sell any Battery Electric Vehicles (BEVs) in 2021. However, in 2022, it managed to deliver 131 BEVs and only 79 in 2023 due to a pause in sales and truck recalls following multiple battery fires. In 2023, the company also delivered 35 Fuel Cell Electric Vehicles (FCEVs).
Since going public, Nikola has had three different CEOs leading the company, and its founder Trevor Milton was found guilty of securities and wire fraud in 2022. Additionally, the company has significantly raised its outstanding shares by over 250% in the last four years in an attempt to generate additional funds through secondary offerings.
To improve its financial stability, the company increased production and shipments, boosted revenue, and enhanced its adjusted EBITDA margin by cutting costs and moving past the closure of its internal battery pack supplier Romeo Power in July. These measures helped to stabilize cash flow and slightly decrease overall debt levels.
Nikola’s sales in the first half of 2024 were mainly driven by FCEVs, with these sales compensating for the slow sales of BEVs. The company is currently addressing issues related to a battery recall for its BEV customers and aims to complete this process by the end of 2024, while also introducing an updated version of its BEVs.
Nikola’s debt-to-equity ratio of 1.1 appears to be under control, primarily due to the significant increase in its weighted-average shares during the first half of 2024. This move was aimed at raising additional funds through selling stocks. Essentially, the company is heavily diluting its current shares to avoid a potential collapse of its balance sheet.
Should I buy, sell, or hold Nikola stock at this moment?
Throughout the entire year, analysts anticipate a significant increase in Nikola’s revenue by 252% to reach $126 million due to the increased shipment of FCEVs and the stabilization of its BEV business. With the current enterprise value standing at $406 million, the stock appears to be undervalued at only 3 times the sales forecasted for this year.
Tesla Having introduced its own electric semi-truck in 2022, Nikola is experiencing a more moderate growth rate compared to other companies, but it is valued at 6 times its sales for the current year. Despite this, the continuous reduction in Nikola’s ownership stake could potentially increase its valuations, regardless of whether its stock price increases.
Experts predict that Nikola will reduce its adjusted EBITDA loss from $519 million in 2023 to $372 million in 2024. This would be the first time the company has decreased its adjusted EBITDA loss year-on-year since going public. However, this improvement may not be enough to persuade skeptics. The business is able to be maintained over time. Particularly if Tesla rapidly expands its semi-truck operations to push smaller rivals such as Nikola out of the industry.
Selling Nikola at its current low valuations may not be the best decision. However, buying the stock before it completes its BEV recall and expands its FCEV business poses significant risks. Therefore, it is advisable to hold onto Nikola if you already have it and wait for further progress before considering additional share purchases.
