The Nikola stock price has collapsed to a record low, transforming a company that was once worth $26 billion in 2020 to just $74 million. NKLA has imploded as risks of bankruptcy rise during the Donald Trump Administration. So, will the Nikola share price rebound or continue falling this year?
Nikola has bankruptcy risks
Disruptive companies in the automotive industry are facing substantial challenges, with many of them expected to file for bankruptcy soon.
Canoo filed for bankruptcy earlier this year and is now in the liquidation process. It joins other companies like Fisker and Lordstown Motors that have imploded, costing investors billions of dollars.
More EV companies will likely file for bankruptcy this year, with some of the potential names at risk being Mullen Automotive and Faraday Future.
Nikola, a company at the intersection of electric and hydrogen trucks industry is also at a significant risk of filing for bankruptcy this year, especially now that the Department of Energy is going through changes.
Nikola, which Trevor Milton started, is a firm building hydrogen trucks, which analysts believe are better for the climate than electric ones, especially when green hydrogen is used.
This is a big industry that has a chance of survival in the long term. However, it also faces major challenges that are putting Nikola at risk.
Nikola and hydrogen trucks face insurmountable problems
The first major issue is that the hydrogen infrastructure in the US and other countries is not all that developed. As such, potential truck buyers are concerned that they can’t drive their vehicles across the country as they do with their diesel vehicles.
Nikola’s hydrogen trucks are more expensive than diesel ones from companies like Daimler and PACCAR, discouraging many potential buyers since the truck industry is a low-margin one. Nikola’s trucks cost about $351,000 against manufacturing costs of $679,000.
Further, the maintenance cost of these trucks is more expensive in the United States. The average diesel price in the US is about $3.64 a gallon, much lower than the average hydrogen price in California of about $34 per kilogram.
These facts explain why Toyota has largely abandoned its plan for selling its hydrogen vehicles to the masses.
On top of this, Nikola does not have a good balance sheet to support its continued loss making. The most recent numbers showed that it sold 88 vehicles in the third quarter, up by 22% from the second quarter. These deliveries led to higher revenues, which came in at $25.1 million. Its net loss was over $199 million during the quarter and $481 million
A company making these losses can only survive and thrive only if it has a strong balance sheet, which Nikola lacks. It ended the last quarter with $198 million in cash and short-term investments. These funds are not enough for a company losing millions of dollars each quarter, which explains why the company issued its going concern warning.
Is it safe to buy the Nikola stock dip?
The daily chart shows that the NKLA share price has imploded, falling from a split-adjusted $34.5 in April 2024 to the current $0.8375. The stock has formed a falling wedge chart pattern, a popular bullish reversal sign.
However, with a bankruptcy almost certain, there is a likelihood that the NKLA share price will continue crashing this year. My expectation is that it will file for bankruptcy protection by March this year.
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