Nikola Stock Charges Higher…Is It Headed to $100?

Move over Tesla. The electric vehicle market has a new player in town. Phoenix-based electric truck manufacturer Nikola (NASDAQ:NKLA) took the market by storm this summer after its June 4^th Nasdaq debut.

Fresh of its merger with SPAC VectoIQ, Nikola raced to over $90 per share only to dive back under $30 less than two months later. The stock looks like it may be getting a second wind after a gap up on August 10^th came on the second largest trading volume day of its early history.

Last week's jump was fueled by news that Nikola received of an order for 2,500 battery-electric waste trucks from waste collection company Republic Services. The announcement came as a breath of fresh air for a company that has played its cards close to its chest. A lack of detail about its business developments disappointed investors in its recent quarterly call.

If we start to see similar color around the company's market demand, it could quickly propel the stock back towards the $100 mark. The mysterious, volatile nature of Nikola makes it one of the most exciting market debuts in recent history. Investors should buckle in for a wild ride.

When Will Nikola Start Making Money?

Nikola has yet to record any revenue, so why all the buzz? Investors are looking down the road to the company's massive market opportunity. Nikola has the potential to be a major beneficiary of the global shift towards tighter global standards on carbon emissions.

Based on third party research, the company estimates that the global commercial vehicle space is a $600 billion market comprised of approximately 7 million trucks. This estimate includes the sale of trucks, repairs, maintenance, and fuel.

Nikola is the only company currently offering both battery electric vehicle (BEV) and fuel-cell electric vehicle (FCEV) solutions to the emissions challenge. As such, its potential market includes customers that operate both short and long-haul fleets.

The company is seeing strong demand for its recently introduced BEV truck. It plans to roll out this truck in 2021 at which point revenue should start pouring in. The BEV truck, designed for short to medium term hauls, has a 100 to 300-mile range and takes several hours to recharge.

Nikola has a promising joint venture with European commercial vehicle maker CNH Industrial/IVECO which is expected to shorten its go-to-market strategy for the BEV truck by as much as a year and a half. The co-development partnership also de-risks Nikola's manufacturing execution and accelerates its penetration into European market.

What is the Size of Nikola's Pre-Order Book?

The more compelling product from an investor's standpoint is the FCEV truck. Intended for long hauls, it has a 500 to 750-mile range and takes 10 to 15 minutes to refuel. These figures are roughly equivalent to those of diesel trucks.

The FCEV pre-order book is 14,602 trucks worth an estimated $10.2 billion. This represents about 2 years' worth of production. The FCEV truck is slated to be launched in 2023. This is when revenues could start to go into overdrive.

The company plans to offer bundle pricing in its FCEV business that includes its trucks, fuel, and maintenance. This cost is forecast to be around $0.95 per mile. More importantly, this would be a known cost as opposed to the more volatile and piecemeal diesel cost per mile estimate of $0.97.

Cost compared to diesel may be a consideration for customers initially but over time, as diesel trucks no longer meet emission standards, relative cost will likely be less of a factor.

Demand for Nikola's FCEV trucks has come from large, well-known customers. Almost two-thirds of FCEV truck reservations have been made by large corporate customers. Anheuser-Busch is one of the few customers that has been revealed. In 2018, it placed an order for 800 trucks as part of its push towards a zero emissions fleet.

The order book also includes an order of 5,000 trucks from an undisclosed large U.S. fleet owner. If this company is made known to the market, it could boost Nikola's credibility along with its share price. This could especially occur if it is a financially stable, blue chip customer such as Walmart as additional orders would likely be forthcoming.

Demand has been so hot that Nikola recently chose to freeze its order book. It instead opted to enter negotiations with existing customers to convert its pre-orders into binding contracts with deposits.

What Does Nikola Do Besides Make Electric Vehicles?

Nikola is using the proceeds from the SPAC deal to build a state-of-the-art manufacturing facility as well as to launch its hydrogen station infrastructure.

Last month the company broke ground on a one million square foot manufacturing facility located on a 430-acre property in Coolidge, Arizona. The $600 million investment will initially produce the Nikola Tre and Nikola Two trucks and eventually reach a capacity of 35,000 vehicles per year.

The less talked about growth area for Nikola is its energy storage systems business. The company is in the early stages of building out its hydrogen infrastructure which will enable fleets to refuel with green hydrogen at prices that are competitive with diesel fuel.

The company plans to build 700 hydrogen stations in North America by 2028 and 70 stations in Europe by 2032. Nikola's hydrogen station business significantly increases its addressable market and diversifies its business model away from trucks.

Is Nikola a Buy?

Nikola is undoubtedly a long-term growth story that will likely develop over the next 10 to 20 years. But investors with the time horizon to match it and stomach to handle its volatility have the potential to be rewarded by one of the best growth stock performances of the decade.

Despite not booking any revenue, the Nikola's sizeable pre-order book provides good visibility into its future revenue stream. As large and small corporate fleets transition to electric and hybrid trucks over the next several years, Nikola could be in the driver seat to flourish from strong demand for its diverse, cost-effective vehicle lineup. The global adoption of hydrogen, the world's most abundant element, as a clean fuel source could also provide a strong growth engine.  

The dramatic early June rise may have been partly fueled by emotionally charged, sheltered-in-place day traders. Yet Nikola has the growth story to support a resumed uptrend. Given the massive growth opportunity in the electric vehicle space and investor interest around these stocks, Nikola may be a couple of headlines away from the $100 mark.