Short electric-truck maker Nikola, the Tesla wannabe
Nikola, the electric-lorry maker, has yet to produce any trucks – and the share price looks ripe for a fall.
The jury may still be out on the long-term prospects of electric-car maker Tesla, with even founder Elon Musk admitting that it may be overvalued. But it has been one of the most successful investments of the past decade. The stock has risen 50-fold since it first went public in July 2010. No wonder, then, that investors have snapped up shares in similar companies, no matter how shaky their business model.
One such Tesla wannabe is lorry maker Nikola (Nasdaq: NKLA). Its founder and CEO Trevor Milton says that he wants to move both pick-up trucks and the haulage industry from petrol and diesel towards hydrogen power (hydrogen fuel cells convert the hydrogen into electricity, and there are no harmful emissions). The group also produces battery-powered electric vehicles. Milton claims that Nikola has already secured 14,000 orders for its trucks. Investors seemed to have hitched themselves to the company, with Nikola’s share price surging from $13 in May to a peak of nearly $80 before slipping back to the current price of $70.
Despite this initial success, Nikola has already courted controversy, with Milton threatening to sue Bloomberg for libel. Milton claims that a Bloomberg article alleging that he misled investors in a presentation four year ago (by implying that a prototype Nikola articulated lorry that he showcased could be driven, when it was in fact missing key parts) is “misleading”. Prominent short-sellers such as Andrew Left of Citron Research have argued that Nikola is extremely overvalued. Nikola has even incurred the ire of Tesla’s Musk, who called its technology “staggeringly dumb”.
Criticism from competitors and short sellers is one thing, but there are some solid reasons to be sceptical of Nikola. Firstly, it hasn’t actually produced anything yet. While it claims to have a significant number of pre-orders, it won’t start low-volume production of battery-powered electric pick-up trucks until next year, with the hydrogen-powered heavy goods lorries not arriving until 2023. Even its own projections admit that it will take time to build enough hydrogen fuel stations to make the technology attractive to haulage companies.
Nikola’s vehicles will also be launching into a market that is already extremely competitive. In addition to Tesla, big manufacturers such as GM and Ford are planning to launch electric pick-up trucks next year, alongside offerings from startups such as Lordstown, Rivian and Bollinger. Similarly, Tesla, Daimler and Nissan have either launched electric heavy lorries or want to do so soon. The upshot is that the shares should fall further. I recommend shorting them at the current level of $70 at £20 per $1. Given the high degree of volatility, I suggest a looser stop loss than normal, covering your position if they go above $115. This gives you a potential downside of £1,000.