Should You Stay Away from Nikola Corporation?
OVERVIEW
Nikola Corporation is a startup based in Arizona that specializes in clean transportation methods, primarily through the development of semi-trucks, trucks, and other clean modes of transport. The company also intends to operate energy solutions like energy storage as well as hydrogen fueling stations.
Why You Should?
- Nikola recently IPO’d on the Nasdaq to raise funds for its future mission, a world of clean energy transport. They have the potential for strong long-term growth if they can do this as companies and governments all around the world are looking to combat the impacts of climate change. It develops these solutions and might be a great long term buy.
- Nikola has gained large orders of trucks from several Fortune 500 companies as well as several individual consumers. The most recent order came from Republic Services, a solid waste company with operations in the United States, for 2500 electric garbage trucks. If these kinds of pre-orders come in, it will definitely benefit the company’s long term growth.
- Nikola just formed a partnership with General Motors to speed up the development of an electric and fuel cell electric pickup truck. This will cause a rise in demand for their products as General Motors is a well-known car company and its products have decent sales. These kinds of partnerships will benefit the company’s long term growth prospects.
Why You Should Not?
- Nikola faces tough competition, most notably, Tesla. Tesla has had a jump on everyone else in the space and offer products that might be more efficient and cheaper than the ones that Nikola offers. Tesla also has a stronger balance sheet and actually makes products, unlike Nikola. Because of this, Tesla and other EV players might crush Nikola in the long term.
- Nikola’s sky-high valuation is tough to defend. It has sold no cars and has not developed many other products into production yet. This causes the company to have high valuation due to high volume trading and will cause volatility. I would stay away from this stock as it is an extremely risky gamble.
- Nikola still has the possibility to go bust. As they have not sold anything and have a weak balance sheet, it will be hard for them to raise capital in the future to stay afloat and continue innovating. Recent reports saying that the company is a fraud and having leadership not deny that report further complicates the future for Nikola.
- Nikola still has not turned a profit and continues to report steeper losses that are not proportionate to the companies revenues. The company still intends to report losses until they start to deliver trucks at a profit, which is years ahead. This proves that Nikola can not be a 12 billion dollar company and causes a great deal of concern for many investors. In the financial year of 2019, the company reported revenues of around 482 thousand and a loss of around 88.7 million. In the financial year of 2018, the company reported revenues of around 173 thousand and a loss of around 64.3 million dollars.
MY OPINION
In my opinion, I will stay far away from Nikola. I am a current investor in Tesla and think that Tesla is beating Nikola in every way possible right now. Other companies like NIO can possibly compete with Tesla but Nikola is far away right now. The possibility of it going bust and a company that reports great losses worries me as an investor and outweighs any pro that the company has. I will possibly invest in this company when they sell their first vehicles.