Former CEO, company founder and major shareholder (with an estimated 20 per cent of the company still owned) Trevor Milton has been charged with making “misleading, false statements directly to the investing public” via social media and television, print and podcast interviews, according to an SEC investigation. A court has frozen assets worth US$ 100 million belonging to Trevor Milton. However, the company has nothing to do with it. Construction work at the Coolidge plant is progressing according to plan. In parallel, there were various cooperation agreements with distributors as well as service points for repairs – now already 116. In addition, Nikola is expanding the sector of consumables – electricity supply contracts for battery-electric trucks as well as for the in-house production of hydrogen. The H2 infrastructure is being built in parallel.
Nikola is massively expanding its distribution structure: 51 locations in nine US states are added, raising the total number of locations to 116. Nevertheless, the share price has recently fallen again, but this is normal, especially since the short sellers are still betting massively on falling prices.
I have a feeling that the lawsuit against the ex-chief executive will not have any effect on the current development at Nikola for the time being (without commitment), even if the further procurement of capital is psychologically burdened in the short term. I expect additional analyses from investment banks and analysts. Elon Musk, CEO of Tesla, also had to pay US$ 20 million in one case for tweets that influenced the share price, as did Tesla, since the company had tolerated the behaviour of its own boss without intervention. Price turbulence arose here, which was dramatically higher compared to Nikola and its shares. For me, all this is a sideshow.
Reports on the second quarter
Approximately US$ 143.2 million was the loss (minus US$ 0.36/share) as a logical consequence of the expansion of the Coolidge factory as well as tooling and truck development costs. By the end of this year, this production site should theoretically be able to produce 2,400 trucks, and by 2023, 20,000 units per year should be able to roll off the production line. By the end of the year, there should still be US$ 500 to 530 million in the account. It is interesting to note that the vehicle manufacturer has entered into a financing agreement with Tumin Stone Capital. Thereafter, Nikola can sell up to US$ 300 million worth of new shares to Tumin at a price and time determined by Nikola. I see this more as an ATM programme, whereby Nikola can issue new shares step by step, while Tumin can hold them or resell them on the stock exchange. Theoretically, Nikola will still have over US$ 800 million available when this funding is realised.
In addition, it was announced that the first hydrogen filling station will soon be put into operation and that further cooperations are planned, including in H2 production and with other service and sales partners. The video showing a fully loaded truck driving up a slope with its own engine power was probably directed at the short sellers.
My conclusion: Nikola addresses the right market and will go its way. It would be good if, once shareholder Hanwha has sold its five per cent, another strategic investor were to step in. And since Ballard has the former CEO of CNH on board as a new board member, Nikola should consider buying the stacks from Ballard in the future. I stand by the classification: Buy on bad news.
Every investor must always be aware of his own risk assessment when investing in shares and also consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid caps, i.e. they are not standard stocks and their volatility is also much higher. This report is not a buy recommendation – without commitment. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on a medium- and long-term valuation and not on a short-term profit. The author may be in possession of the shares presented here.
Author: Sven Jösting, written August 12th, 2021