Can Nikola Really Take On Ford?

One is a five-year-old company whose share price has recently rallied 600% in a single month, the other is a 116-year-old company whose share price is down 40% over the past year. Maybe it’s symptomatic of the 21st century where a tech-driven startup can unseat, or at least try to, a stalwart who basically created the auto industry, but it’s certainly exciting to watch.

Nikola Corporation (NASDAQ: NKLA) is a hybrid truck company, based out of Arizona. They IPO’d in the summer of 2018, moved 10% high on tiny volume into 2020 and but firmly announced themselves on the world stage this past May. The company announced a reverse merger with VectoIQ Acquisition Corporation, a company formerly run by a General Motors executive, which helped get them on the NASDAQ exchange, and from there, Wall Street did the rest.

The eye-watering rally of recent weeks came as Wall Street started comparing them to their namesake Tesla (NASDAQ: TSLA), called them the next big thing in the electric automobile industry, and sent the stock to the stratosphere. Nikola already has more than 14,000 preorder reservations for its trucks which represents almost $10 billion in potential sales. Not bad for a company that turned $58,000 in revenue for Q1 and doesn’t plan to sell its first truck until 2021.

David vs Goliath

Then last week, Nikola’s executive chairman Trevor Milton added fuel to the fire by announcing their plans to dethrone Ford’s (NYSE: F) famous and much loved F-150 truck with their own Badger model. For context, the F-150 pickup has been the best selling model in the US for years. This fighting talk, and the announcement that pre-orders for the hydrogen-electric run Badger would open up on 29 June, sent the stock up 160% in two days.

Wall Street has seen over the recent weeks and months just how quickly shares of Tesla can rise once they get some momentum and hype. Given the leader in the electric car space hasn’t made a foothold in the trucking and transportation space, it feels like the time is ripe for a ‘Tesla for trucks’ to come onto the stage.

It would truly be a David versus Goliath battle if Nikola’s Badger really goes after Ford’s F-150. But we’ve seen that kind of innovation and technology driven disruption in almost every industry in recent years. The automobile industry is certainly no different. While the shares of old school companies like Ford, Fiat Chrysler (NYSE: FCAU) and General Motors (NYSE: GM) are down 70%, 60% and 40% respectively from their highs of the past decade, Tesla has been eating their lunch and is up close to 3,000% over the same time period.

If Nikola starts to fulfill their potential and drip investors positive news of manufacturing output goals being met, record preorder numbers coming in etc., the sky's the limit for them. And investors seem to know it.

Huge Potential

Ford have had years to prepare for this kind of competition, but the best they can offer in terms of a launch date for their own electric version of the F-150 is the summer of 2022. Talk about missing a trick! Their last earnings report in April painted a grim picture and in reality just showed a wounded beast. They missed analyst expectations on EPS and revenue with the latter contracting close to 16% year on year.

Even Ford bulls couldn’t blame it all on coronavirus. The company’s previous earnings in February showed revenue shrinking by more than 5% year on year while their EPS also missed expectations. On top of all this, Standard & Poor’s cut Ford’s credit rating to Junk in March while Moody’s issued a similar warning.

\While Nikola’s shares have cooled from the highs of recent weeks, it’s a nice notch on their belt to have overtaken Ford in market cap already, albeit only briefly. The real work lies ahead, but the ball is firmly in Nikola’s court.