What happened
Shares of electric vehicle (EV) start-up Nikola Corporation (NKLA 4.27%) dropped 45.5% in value in March, according to data provided by S&P Global Market Intelligence. The company reported financial results in late February which, while showing progress, pointed to a long road ahead toward profitability. And it closed out March with a reminder that cash is still needed for Nikola at this time.
So what
Early in March, Nikola stock was dragged down by market conditions. It was in early March that SVB Financial experienced its historic collapse. Nikola never disclosed having funds at SVB. However, it was a time of market uncertainty. And shares of start-ups like Nikola were disproportionately affected at the time, as investors seemingly questioned where companies had their cash.
Cash flow was also on investors’ minds in March. For context, Nikola’s management had said it would deliver 300 to 500 of its Tre BEV semi trucks in 2022. However, it reported in February that it only delivered 131 to dealers. And lower-than-anticipated deliveries was partially to blame for the company’s substantial gross loss of $105 million for the year.
On the conference call to discuss financial results for 2022, analysts asked about Nikola’s roadmap and its liquidity to get where it needs to go. To this, CFO Kim Brady said, “We believe we maintain adequate access to capital to fund our business operations in 2023.” Management mentioned things like its line of credit and cash on hand as reasons for optimism.
Given the steady decline of the stock in March, I’m not sure how optimistic the market was about Nikola’s finances. But on March 31, shareholders got some unwelcome news. The company decided to raise $100 million by selling stock for a paltry $1.12 per share — well below the price where it traded at the time.
It’s a continuation of a trend for Nikola. While the share price has fallen, the share count has gone up, decreasing shareholder value.
NKLA data by YCharts.
Now what
Nobody thought that it would be easy to go from an idea to a full-sized, hydrogen-powered vehicle company. But investors gave Nikola a chance anyway because the transition from fossil fuels is potentially a big investment opportunity.
However, it’s also expensive to get to scale in this space. And unfortunately for Nikola shareholders, it’s still a long ways from turning the corner. At the midpoint of management’s guidance, it could spend another $635 million in 2023. And for all this spending, management hopes to deliver 500 vehicles at most in the coming year.
In conclusion, Nikola is still a speculative stock even after getting cut nearly in half in just one month. Indeed, it might need to raise additional funds in the future before production ramps up meaningfully.