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

Nikola NASDAQ: NKLA delivered better-than-expected results during the second-quarter, as the company produced over 50 Nikola TRE Bevs during the quarter and delivered over 48 to dealers. The company remains on track to deliver 300-500 trucks during the fiscal year and continues to see significant improvement in its FCEV auto-pilot program.  Total revenue came in at $18 million and earnings per share came in at -41 cents.  After posting better than expected results, the shares were up 5% in trading.

“Our momentum continued during 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, Nikola’s Chief Executive Officer. “We are committed to executing on our second half milestones.”

Nikola and the trucking industry

Nikola continues to produce multiple models of electric, fuel-cell electric vehicles, and energy solutions.  Currently, the company produces only one model, the TRE BEV, a heavy-duty electric truck. But post 2023, the company plans to launch two fuel-cell trucks, which should result in significant production increases. Nikola has also been working on various energy solutions, including providing hydrogen infrastructure, and investors are looking more closely at Nikola’s fuel cell operations than they are at its electric vehicle operations, although the electric trucks should be as lucrative. Nikola also continued to improve its energy infrastructure through the quarter and now has operating stations at numerous new locations, including Long Beach, California.

Currently, the heavy-duty truck industry stands at $200 billion and is expected to grow at a 6-7% CAGR, over the next 5 years. With a shortage of trucks and a significant push toward reducing emissions, Nikola is at the center of what could be a very lucrative future. It remains to be seen though what demand will look like once the incentives go away. But for now, as long as it can ramp up production, the company remains on a strong footing.

The average Nikola truck costs around $275,000, much higher than the $170,000 that the traditional models cost, but expects to entice buyers, by offering numerous deals including a credit lines and vouchers that range anywhere from $150,000 to $180,000 depending on the state they're in. The combination of vouchers and credit lines makes buying the trucks relatively inexpensive and may see many truckers switching over from traditional models. The company also had plans to produce electric pickups but canceled them on a lack of viability, which resulted in the stock plunging.  

Liquidity remains a concern, and further dilution is likely

Nikola's stock is down over 42%, from its 52-week high mainly due to a number of concerns that cropped up in previous quarters. The biggest issue for Nikola remains the cash burn rate, 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 have to continue diluting shares moving forward. During the current quarter, management approved a dilution of 200 million shares, increasing the share count 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 through possibly mid-way of 2023, and if issues with its supply chain or production affect production, it may continue to produce negative cash flow well into 2024.

Financial outlook and valuation

The company stands to produce around $135-$150 million dollars in revenue in 2022, and that number is likely to jump to $650-800 million in 2023, but that number could go as high as $1 billion if Nikola hits its production target of 3500 trucks.

The company currently trades at a market capitalization of $3.2 billion, which would indicate a 2022 price-to-sales of 30x, and a 2023 sales of 3x. Considering that Nikola should significantly benefit from the voucher program for a few years, sales could easily reach 10,000 to 15,000 trucks by 2024. Compare the numbers to the likes of Daimler, which sold 71,000 class-8 trucks alone in 2020, and the the potential for the company remains bright.

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