Nikola (NKLA) is both on observe to be one of many best inexperienced vitality tales of this technology or probably the most overhyped firms in fashionable occasions. Given all the things that has transpired over the previous few weeks, the latter seems to be the extra doubtless state of affairs. In reality, Nikola has now been accused of outright fraud by a number of credible organizations, most notably Hindenburg Analysis.
Hindenburg Analysis just lately launched a extremely essential report on Nikola’s enterprise, inflicting Nikola’s inventory to crash. Whereas it needs to be famous that Hindenburg Analysis is brief Nikola, the corporate’s report does legitimately increase many purple flags. Nikola’s long-awaited response to the report is essentially insufficient and arguably places a good worse gentle on the corporate.
Nikola’s inventory continues to development downward following the fraud allegations levied towards the corporate.
Response Does Little to Ease Investor Fears
Nikola’s response to Hindenburg Analysis’s report doesn’t precisely assist Nikola’s case. Nikola notably admitted that the Nikola One prototype in its “Nikola One Electrical Semi Truck in Movement” promotional video was rolling downhill. Nikola defends itself by saying that the corporate “by no means acknowledged its truck was driving beneath its personal propulsion within the video” and that the truck was “by no means described as “beneath its personal propulsion” or “powertrain pushed.”
One might be forgiven for believing that the truck was driving beneath its personal propulsion, particularly contemplating the truth that Nikola referred to the truck as a 1000 horsepower semi-truck. What’s extra, the corporate additionally acknowledged that the Nikola One was absolutely useful in December 2016, which clearly conflicts with what we now know. The Nikola One prototype was, in actual fact, not absolutely useful in December 2016 nor was it useful within the promotional video that was launched a bit of over a yr later.
The promotional video response debacle was simply one in every of many obtrusive points present in Nikola’s total response to Hindenburg Analysis. Nikola additionally had a equally weak protection to its inverter controversy. Nonetheless, what’s most notable about Nikola’s response was the truth that the corporate didn’t truly reply to most of Hindenburg Analysis’s questions.
The Nikola One prototype was not beneath its personal propulsion within the firm’s promotional video.
Comparisons to Early-Stage Tesla Are Flawed
Many proceed to justify Nikola’s market capitalization of ~$13 billion by stating that the corporate is paying homage to an early-stage Tesla (NASDAQ:TSLA). Like an early-stage Tesla, Nikola is a clear vitality transportation firm that’s far too overvalued when utilizing conventional valuation metrics. Sadly, for Nikola, that is about the place the similarities to Tesla finish.
By the point Tesla was valued wherever close to Nikola’s present ranges, the corporate had already produced critically acclaimed automobiles just like the Mannequin S. In distinction, Nikola has but to ship a single automobile. In reality, there may be now rising skepticism surrounding their supposedly breakthrough applied sciences.
Furthermore, Tesla CEO Elon Musk had already confirmed himself to be extremely competent when Tesla was valued on the $10-20 billion mark along with his successes at PayPal and SpaceX. There is no such thing as a one on Nikola’s administration that compares to Elon Musk when it comes to observe data. This reality alone makes it onerous to imagine that Nikola will revolutionize clear vitality transportation. Given Nikola’s valuation, this seems to be precisely what many buyers anticipate Nikola to do.
Potential to Generate Hype
Nikola has confirmed to be extremely competent when it comes to advertising. The truth that Nikola was in a position to garner $10 billion in pre-order reservations regardless of not but having delivered any automobiles is definitely a powerful feat. If Nikola’s expertise can come wherever near what the corporate has been promoting, Nikola may genuinely carve out a powerful foothold within the clear transportation trade.
Nikola’s means to generate hype ought to definitely not be missed. Furthermore, Nikola, clearly, has a capability to make a convincing case for itself contemplating the partnerships it has struck up up to now. Nikola’s advertising means alone may permit the corporate to outlive in conditions the place it in any other case couldn’t have. Nonetheless, a lot of Nikola’s means to generate hype can be tied to the corporate’s seeming tendency to magnify its expertise, which is now clearly beginning to backfire.
The Dangerous Information Retains Piling on
Nikola is now reportedly beneath the scrutiny of the US Department of Justice because of the short-seller accusations going through the corporate. This new improvement got here shortly after it was revealed that the SEC was reportedly probing Nikola because of the fraud allegations.
Whereas nothing could, in the end, come of those investigations, it should nearly definitely do unbelievable injury to Nikola’s status. This won’t solely damage the corporate’s model picture however may additionally doubtlessly damage the corporate’s means to boost cash shifting ahead.
Whereas many have pointed to GM’s (GM) backing of Nikola as proof of Nikola’s power, GM’s help of Nikola is no surprise contemplating the truth that their deal is lopsided in GM’s favor. In different phrases, GM has loads to realize and comparatively nothing to lose in its cope with Nikola. If Nikola collapses, GM will nonetheless come out comparatively unscathed other than a bit of little bit of embarrassment. If Nikola finally ends up changing into the following massive inexperienced vitality transportation firm, GM can have an enormous buyer on its fingers.
GM has an enormous quantity of upside and comparatively little draw back in its cope with Nikola, which may clarify why GM continues to be backing Nikola even amidst the intense fraud allegations going through Nikola.
Nikola is going through a mountain of challenges, from rising investor skepticism to fraud allegations. Furthermore, Nikola’s response to the allegations was not notably convincing and raises much more questions. Although Nikola’s inventory value has crashed by ~40% to ~$12 billion over the previous week, the corporate nonetheless seems to be far too overvalued. The dangers related to Nikola are far too giant to disregard at this level.
Disclosure: I/we have now no positions in any shares talked about, and no plans to provoke any positions throughout the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from In search of Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.