Nikola Stocks: Buy, Sell or Hold?

The electric semi-truck maker still faces existential challenges.

Nikola (NKLA -2.44%), an electric semi-truck maker, went public in June 2020 by merging with a special purpose acquisition company (SPAC). Shares opened at $37.55 and more than doubled to an all-time high of $79.73 a week later. But today, shares of Nikola are trading for less than $1.

Nikola’s investors fled as the company largely missed its own production estimates, its founder and former CEO, Trevor Milton, was convicted of securities and bank fraud in 2022 and recalled nearly all of its vehicles in 2023. That same year, Nikola doubled its own production. number of shares to raise new money through secondary share issues and moved on to the fourth CEO in as many years.

All these issues are clear warning signs, but could Nikola be a game-changer for contrarian investors? Let’s discuss the top reasons to sell, buy, or hold these volatile electric vehicle (EV) stocks.

Nikola's Tre FCEV.

Image source: Nikola.

The reasons for selling Nikola

Nikola initially set a number of ambitious production goals for its battery-powered electric trucks (BEVs) and hydrogen-powered fuel cell electric trucks (FCEVs). In the pre-merger presentation, the company told investors it could deliver 600 BEVs in 2021, 1,200 BEVs in 2022 and 3,500 BEVs in 2023. It also planned to deliver 2,000 FCEVs in 2023.

Unfortunately, Nikola delivered no vehicles in 2021 and only 131 BEVs in 2022. Like many other smaller EV makers, Nikola blamed the slow production rate on supply chain constraints and other macro headwinds. In 2023, it delivered only 79 BEVs (due to the recall of most of its BEVs after a series of fires) and 35 FCEVs.

In the original presentation, Nikola said it could generate $1.41 billion in revenue in 2023 with negative adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $66 million. But in reality, it generated just $36 million in revenue in 2023, with negative adjusted EBITDA of $519 million.

That’s a grim situation for a company that ended the year with just $465 million in unrestricted cash. Nikola could try to raise more money by diluting its own shares again, but the company has already increased its share count by 239% in the last three years. Even if Nikola launches another secondary offering, it may have to sell its shares at a price steep discount at the market price – like last March – to attract buyers.

To make matters worse, Nikola’s shares could be delisted if they remain below $1 for too long. It’s trying to avoid that fate with a reverse stock split, but that’s a desperate proposal that won’t inspire much confidence in the future.

Finally, Nikola is already losing its lead as a pioneer in the electric semi-truck market. Tesla (NASDAQ: TSLA) And Daimler truck (OTC: DTRU.Y) both started delivering their first electric semi-trucks in 2022, and it could be incredibly difficult for Nikola to keep pace with those larger and more profitable automakers.

The reasons to buy or hold Nikola

On the plus side, Nikola expects growth to accelerate again in 2024. During his most recent conference call in February, CEO Steve Girsky predicted the company would generate between $150 million and $170 million in total truck revenue for the year. With an enterprise value of $700 million, Nikola is trading at four times the midpoint of that forecast. That makes it cheaper than Tesla, which has five times as much turnover this year.

Girsky also expects Nikola’s gross margin to improve from negative 597% in 2023 to between negative 80% and negative 100% in 2024 as Nikola raises its prices and lowers its production costs, and that its operating costs will decline from $436 million in 2023 to between 2023 and 2024. $280 million and $300 million in 2024. Girsky believes Nikola can achieve these goals even as it expands its hydrogen charging network with its partner Voltera. It aims to open fourteen of those stations by the end of 2024 to support its own FCEVs.

Investors should take these optimistic estimates with a grain of salt, but they suggest that 2024 could be a transformative year for Nikola as it finally leads to action. On the liquidity side, the manageable debt-to-equity ratio of 0.8 (which was lowered by nearly doubling the number of shares over the past year) still leaves some room for new debt issuance.

So is it time to buy, hold or sell Nikola?

Nikola is once again making some bold promises, but I personally would have to see a few green shoots before buying the stock. So for now, I still think it’s smarter to sell Nikola than to buy it or hold it as a Hail Mary.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool has a disclosure policy.