Time To Take A Serious Look At Nikola Stock As Production Starts

Nikola (NASDAQ: NKLA) delivered better-than-expected results in the second quarter, as the company produced more than 50 Nikola TRE Bevs during the quarter and delivered more than 48 to distributors. The company remains on track to deliver 300 to 500 trucks during the fiscal year and continues to see significant improvement in its FCEV Autopilot program. Total revenue was $18 million and earnings per share were -41 cents. After posting better-than-expected results, the stock rose 5% in trading.

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“Our momentum continued in the second quarter as we began delivering production vehicles to dealers and recognizing revenue from the sale of our Nikola Tre BEVs,” said Mark Russell, CEO of Nikola. “We are committed to executing the second half milestones.”

Nikola and the trucking industry

Nikola continues to produce various models of electric vehicles, fuel cell and energy solutions. Currently, the company only produces one model, the TRE BEV, a heavy-duty electric truck. But after 2023, the company plans to release two fuel cell trucks, which should lead to significant increases in production. Nikola has also been working on a number of energy solutions, including the provision of hydrogen infrastructure, and investors are looking more closely at Nikola’s fuel cell operations than its electric vehicle operations, although trucks electric should be so lucrative. Nikola also continued to improve its energy infrastructure throughout the quarter and now has operating stations in numerous new locations, including Long Beach, California.
The heavy truck industry currently stands at $200 billion and is expected to grow at 6-7% CAGR over the next 5 years. With a shortage of trucks and a significant push to reduce emissions, Nikola is at the center of what could be a very lucrative future. It remains to be seen, however, how demand will be once the incentives are gone. But for now, as long as it can ramp up production, the company remains on solid footing.

The Nikola truck costs about $275,000, much more than the $170,000 that traditional models cost, but it hopes to attract buyers by offering numerous deals that include lines of credit and vouchers ranging from $150,000 to $180,000, depending on the state they are in. The combination of vouchers and lines of credit makes the trucks relatively inexpensive to purchase and many truckers may switch from traditional models. The company also had plans to produce electric pickups, but canceled them due to lack of feasibility, causing the stock to fall.

Liquidity remains a concern and further dilution is likely

Shares in Nikola are down more than 42% from their 52-week high, mainly due to a series of concerns that arose in previous quarters. The biggest problem for Nikola remains the rate of cash burn, which currently stands at around -$273 million in terms of losses from operating activities. If Nikola continues to burn cash at this rate, the company will likely need to continue diluting the stock going forward. During the current quarter, management approved a dilution of 200 million shares, increasing the number of shares from 600 million to 800 million. The company also raised $200 million in private convertible notes during the quarter and now has total liquidity of $840 million, which should keep it liquid for 3-4 quarters. But the burn rate should remain an issue until possibly mid-2023, and if issues with its supply chain or production affect production, it may continue to produce negative cash flow through 2024.

Financial perspectives and valuation

The company will produce revenue of $135-150 million in 2022, and that number is likely to jump to $650-800 million in 2023, but that number could reach $1 billion if Nikola achieves its production target of 3,500 trucks. .

The company currently trades at a market cap of $3.2 billion, which would indicate 30x price-to-sales by 2022 and 3x sales by 2023. Given that Nikola should benefit significantly from the vouchers for a few years, sales could easily reach 10,000 to 15,000 trucks by 2024. Compare the numbers to Daimler, which sold just 71,000 Class 8 trucks in 2020, and the potential for the company continues to shine.

Nikola’s stock could see a significant upside if it can execute on production, meet its forecasts and reign in the cash burn. The future could be very lucrative for the company with a number of tailwinds driving earnings over the next couple of years.

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