Euphoria Fades In Nikola, Momentum Shifts, And Bears Loom

Key Points

• Nikola's stock surged over 100% in the past month but plummeted by 26% following the Q2 earnings report, wiping out significant gains.
• Uncertainty surrounds the stock's future, with questions about whether this marks the end of the bull run or just a temporary pullback.
• The recent CEO change and the approval to issue new shares further add to the market's unpredictability and impact on investor sentiment.

The past month has been a rollercoaster ride for investors in Nikola NASDAQ: NKLA as the electric vehicle manufacturer experienced a remarkable surge of over 100% in its stock value. However, the euphoria came to a halt following the company's Q2 earnings report released last Friday. The stock plummeted by 26% in a turn of events, wiping out significant gains and leaving investors wondering what’s next for the stock. 

To add to the uncertainty, breaking news emerged, further impacting the momentum of NKLA. The burning question on everyone's mind now is whether this is the end of the bull run for Nikola or simply a temporary pullback. 

Shares Drop 26% On Second Quarter Earnings

For the second quarter, the company reported a loss per share of 20 cents versus estimates of a 22 cents loss per share and revenue of $15.36 million versus an estimated $15.4 million.

In Q2, Nikola reported a net loss of $217.8 million (31 cents per share), including $77.8 million (11 cents per share) from discontinued operations. A year ago, the company lost $173 million (41 cents per share). 

Adjusted basis loss in the year-ago quarter was 25 cents per share. Revenue declined to $15.4 million from $18.1 million in Q2 2022. During the quarter, Nikola raised $233.2 million in cash through stock sales and asset divestitures, and it took steps to reduce cash consumption. Cash on hand increased to $226.7 million as of June 30, up from $121.1 million on March 31.

Shareholders Approved Proposal To Issue New Shares

The surge higher originally began in the run-up to the company’s annual shareholder meeting, where the company planned to put to a vote a proposal to increase its total number of authorized shares to raise capital in the future.

After multiple failed attempts to pass the proposal, the company finally secured enough votes. On Thursday evening, Nikola announced they had won approval from shareholders to issue new stock, which could double its total number of shares outstanding.

Nikola Announce CEO Change

On Friday, the company also announced that its President and CEO, Michael Lohscheller, is stepping down immediately due to a family health matter and will leave the Board of Directors on August 31, 2023. Steve Girsky, the current Chairman of the Board, will take over as the new CEO. Lohscheller will stay in an advisory role at Nikola until the end of September to ensure a smooth transition.

Has The Momentum Shifted To Favor The Bears?

Over the past few months, short interest in the stock has steadily increased, indicating bearish sentiment. Despite the recent surge, the bears remain undeterred, with about 20% short interest or 129.5 million shares. The market's response to last week's news likely strengthened bearish confidence in the short term. A critical test awaits as the stock approaches the uptrend support at $2.40. Its ability to find support and sustain the uptrend will determine whether momentum continues in favor of the bulls or if the bears gain the upper hand if the support level is breached.