Founded in 2014, Nikola (NKLA) has received a lot of attention this year, with many investors believing it to be the “next Tesla”.
However, unlike Tesla (TSLA), the zero-emission electric-truck start-up has yet to get its vehicles on the road. With this adding to the recent Hindenburg’s “intricate fraud" scandal and both the US Department of Justice and SEC reportedly examining the accusations, is Nikola stock a good investment at the current valuation, or should it be avoided at all costs?
To answer this question, in this article, we review the company’s latest news and developments, its stock performance and analyst opinion on the Nikola share price forecast for 2021 and beyond.
Stock performance in 2020: the hype that didn’t last long
Dubbed the “Tesla of trucking”, Nikola Corporation made headlines with its IPO launch in June this year, going public through a reverse merger with the blank check company Vector IQ.
The stock started trading on the Nasdaq at $37.55 per share on June 4. As investors rushed to bet on the industry's new hydrogen fuel-cell integrated truck maker, the NKLA share price soared to $73.70 within a couple of days of its market debut. Shares spiked even higher to $93.99 on June 9 after the company’s founder Trevor Milton tweeted that reservations for the Badger, Nikola’s zero-emission truck, would start later that month.
The stellar rally was fuelled by a combination of a growing investor appetite for a new IPO in the hot EV industry and the overall bullish sentiment in the stock market.
However, after testing the $100 per share level, the stock quickly shed its post-IPO gains. In July, it experienced its worst one-day price drop of 21 per cent, which followed the company’s announcement of a 23.9 million shares sale. Since then, the Nikola share price has tanked even lower, wobbling around $17-$18 at the time of writing, November 10.
Lots of drama: from fraud accusations to Milton’s resignation to GM partnership
Before you decide whether to invest your cash in this innovative yet very speculative company, it is important to know what headlines have been driving investor sentiment and, therefore, the share price.
In September, a short-seller Hindenburg Research released a report claiming Nikola Corporation was an “intricate fraud built on dozens of lies". In a few days, it was reported that the Securities and Exchange Commission and the US Department of Justice had started a probe into the fraud allegations.
While Nikola has denied the accusations, Milton resigned from his role as the company’s executive chairman shortly after the report was published. On September 29, the stock ended the trading day at $17.88. All in all, the scandal had cost the business $5m in legal and regulatory costs.
On top of that, Nikola’s multi-billion-dollar partnership with General Motors (GM) has been hanging in the air for quite some time now. In September, the companies announced a $2bn manufacturing and licensing agreement, in which GM would sell fuel cells and batteries to Nikola, as well as engineer and build Nikola's Badger, in return for a stake in the start-up. However, following Hindenburg's report, the deal was put on hold.
In October, Nikola’s CEO Mark Russell said that if the firm cannot secure an agreement with GM, they might have to give up on building the Badger.
On a positive note, in an interview last week, GM chief executive Mary Barra stated that talks between the two companies were still ongoing. Expected to close in late September, the deal now has a deadline of December 3, 2020.
In its latest report, Nikola confirmed that GM talks are continuing, without providing any additional information: "Nikola is continuing its discussions with General Motors. Nikola will provide further updates when appropriate or required."
Financial situation: has it got any better in Q3?
On November 9, Nikola Corp published its financial results for the third quarter of 2020, ended September 30. The business reported a $117m loss in the quarter, compared to $15.5m for the same period a year earlier.
In the meantime, Nikola reported $908m in cash, with a net of $15m in restricted cash for specific purposes. However, such a strong cash position was only possible after the company issued a formal notice of redemption for its 22.9m public warrants, adding around $263.5m of cash to the balance sheet.
What’s next for the business?
Commenting on the Q3 results, Mark Russell said that the company “made significant progress on key milestones”.
Russel continued: “We delivered on our commitment to assemble the first Nikola Tre BEV prototypes and are continuing to work with customers on the prospective and previously announced BEV truck orders.”
“I look forward to building on our momentum as we execute our strategy and lay the groundwork to become an integrated zero-emissions transportation solutions leader."
In July, Nikola and its construction partner, Walbridge, broke ground on the US manufacturing facility in Coolidge, Arizona. In the meantime, Nikola and IVECO have been renovating the joint venture manufacturing facility at IVECO's industrial complex in Ulm, Germany.
During the Q3, Nikola and IVECO started assembling the first five Nikola Tre BEV prototypes, as well as completing the assembly of the first Nikola Tre prototype.
Based on its current construction rate, the company aims to begin trial production in the second or third quarter of 2021.
According to the report, “Nikola remains committed to its goal of announcing potential collaboration partners concerning electricity procurement and the rollout of hydrogen fuelling infrastructure.
“Management is laser-focused on prioritising programs and aligning resources to achieve Nikola's previously announced milestones toward becoming the zero-emissions transportation industry leader.”
The company also commented on the ongoing coronavirus crisis: “Long-term objectives will not be materially affected by Covid-19, and Nikola will continue to provide progress updates across its entire product portfolio.”
With the company’s ambitions flying high, is Nikola stock a buy, hold, or sell?
Nikola share price forecast: is there a glimmer of hope heading into 2021?
The ongoing drama surrounding the company has got many investors questioning the business' legitimacy. But does it mean that the Nikola stock forecast is all gloom and doom?
Wedbush analyst Dan Ives believes that Nikola has the potential to be a “major horse” in the race to develop electric trucks, although Tesla plans to come out with its own trucks in 2021. However, Ives still downgraded the stock from Neutral to Underperform, with the NKLA share price forecast of $15, down from $45.
Before Nikola posted its Q3 financial report, Ives noted: “All focus of the Street is centred around any updates on the GM partnership. With this linchpin EV partnership/ownership stake thrown into uncertainty post the Trevor departure and short report, investors are hoping to get some updates on the progress of signing the GM deal as we head into earnings.
“Overall we still believe the company's EV and hydrogen fuel cell ambitions are attainable in the semi-truck market, although we have serious concerns that the execution and timing of these ambitious goals stay on track over the coming years.”
In September, RBC analyst Joseph Spak lowered Nikola’s price target from $49 to $21. Emmanuel Rosner, an analyst at Deutsche Bank, also cut their outlook for the NKLA stock prediction from $29 to $26 last month, keeping a Hold rating on the shares.
On the other hand, JP Morgan analyst Paul Coster sees the potential for the GM deal to be signed by early December: “Nikola needs access to GM’s supply-chain, engineering resource, the Ultium battery and Hydrotec fuel cells to de-risk the Class 8 truck initiative. GM needs to realise a return on billions of dollars of investment in hydrogen fuel cells, and Nikola might be the best available option.“
Coster reiterated an Overweight rating on Nikola stock, suggesting a bullish price target of $41.
According to CNN Business, five analysts that offered 12-month price forecasts for Nikola have a median target of $26, with a high estimate of $47 and a low estimate of $15.
In its Nikola stock price prediction, WalletInvestor suggests that the share price will rally steadily in the coming years, surging to $53.6 by June 2021 and closing the year at $36 and reaching $83 by the end of 2024.
According to its NKLA stock forecast 2025, the share price is set soar to trade at $95.5 by November 2025.
Are you looking to ride the wave of volatility?
As analysts have split in two in their views on the company's future, it is hard to give a definite answer to the question: what are Nikola shares – a buy or sell? Moreover, it is important to note that global financial markets remain extremely volatile, making it hard to predict what the share price in stock of any company will be in a few hours, and even harder to give long-term estimates.
Trading CFDs gives you the opportunity to try to profit from both negative and positive market fluctuations. If your Nikola share price prediction is for the stock to rise you can open a long position, but if you expect it to move lower you can open a short position.
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