Nikola Corp (NASDAQ: NKLA) has investors wondering if it could follow Tesla Inc (NASDAQ: TSLA) in creating substantial wealth or if it’s on a path similar to Fisker Inc, which succumbed to industry pressures and declared bankruptcy in June.
Tesla’s early investors have seen significant gains thanks to its first-mover advantage in the electric vehicle (EV) market.
In contrast, Fisker struggled with declining demand and failed to maintain financial stability.
So, where does Nikola stand?
Nikola is burning cash like there’s no tomorrow
Nikola is currently facing financial challenges that could spell trouble for its investors.
Recently, the company executed a 1-for-30 reverse stock split to maintain its listing on the Nasdaq Stock Exchange—a red flag signaling potential weakness.
Nikola’s cash burn rate is alarming, with an operating cash flow of approximately negative $459 million over the past year.
As of the end of the second financial quarter, the company had a mere quarter-million in cash and cash equivalents while its long-term debt and finance lease liabilities exceeded $266,000.
Additionally, Nikola has issued several convertible notes, which, when converted to common equity, will further inflate its share count.
Last month, Nikola issued another convertible bond, raising $80 million in gross proceeds, and plans to issue an additional $80 million in convertible bonds pending shareholder approval.
In 2023, the company’s stock-based compensation totaled $75.4 million.
While management projects a reduction to approximately $30 million in 2024, this still represents over 10% of Nikola’s current market capitalization.
Moreover, Nikola faces stiff competition from Tesla Semi, which threatens to overshadow its efforts in the trucking sector.
Should you buy Nikola stock in September?
The company’s track record of overpromising and underdelivering has only compounded investor concerns.
In 2023, Nikola projected 3,500 deliveries of its battery electric vehicles (BEVs) and 2,000 deliveries of its fuel cell electric vehicles (FCEVs), but only managed 79 BEVs and 35 FCEVs.
Revenue expectations also fell drastically, with the firm generating just $36 million last year, a sharp decline from the anticipated $1.41 billion.
However, there is a glimmer of hope. Nikola reported an 80% increase in deliveries of its hydrogen fuel cell trucks for 2024, which contributed to a more than fourfold increase in revenue to $31.3 million in its latest quarter.
This improvement has led Wall Street to maintain an “overweight” rating on Nikola stock, with a target price averaging $16.80.
Investors should proceed with caution. While recent performance shows signs of recovery, a few strong quarters don’t necessarily indicate a sustained trend.
A relapse in financial performance could lead to further declines in Nikola’s share price.
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