Shares of zero-emission transportation start-up Nikola Corporation (“Nikola”) have rallied by more than 50% from last week’s all-time low of $7.25.
Recent Performance Highlights
The main reason behind the bounce has been a short press release which celebrated higher-than-projected Q2 FCEV truck deliveries:
For the first half of 2024, Nikola wholesaled 112 hydrogen fuel cell trucks.
“We have maintained our 2024 momentum with solid wholesale numbers, new customers such as Walmart Canada, and repeat customers like 4GEN and IMC, purchasing vehicles through our dealer network,” said Nikola CEO Steve Girsky.
“We are firmly on the field and are continuing to secure our first-mover advantage in zero-emissions Class 8 trucks in North America, as well as with our HYLA hydrogen refueling solutions”, he continued.
All Nikola trucks are assembled in Coolidge, Ariz.
Financial Challenges
However, investors would be well-served to curb their enthusiasm as the company will be required to raise additional funds sooner rather than later. At the end of Q1, unrestricted cash was down by approximately $120 million quarter-over-quarter to $345.6 million:
Given the unfavorable combination of higher production levels and deteriorating unit economics, quarterly cash burn is expected to increase substantially in the second half of the year.
Production and Economic Concerns
With estimated cash losses of approximately $425,000 per FCEV truck, higher sales volumes are likely to result in increased cash burn as production numbers remain insufficient to achieve economies of scale as also admitted by management on the Q1 conference call:
“There is a market for our trucks and we’ve begun to demonstrate that. That said, profitability will not be where we want it to be until we can build scale. Simply put, it is not practical to optimize our cost structure without a meaningful level of volume”.
Strategic Adjustments
To address the issue, Nikola has altered its go-to-market approach and is now focusing on winning large North American customers by the means of discounted offers.
With many of these potential customers located outside of states with generous subsidy regimes, the company will be required to step in, thus likely increasing cash usage even further.
Financial Outlook
Assuming quarterly FCEV truck production increasing to 125 units in the second half of the year, negative cash contribution would calculate to $75 million, and this number does neither include cash operating expenses nor capital expenditures.
Given the unfavorable combination of higher production levels and deteriorating unit economics, quarterly cash burn is likely to increase substantially in the second half of the year.
Capital Raising Necessity
Nikola would have to raise additional capital in Q4 at the latest point, but it is unlikely the company will wait that long.
Last month, Nikola gained shareholder approval for increasing the number of authorized shares from 53.3 million to a whopping 1,000 million (or almost 1,800%) on a reverse stock split-adjusted basis, thus paving the way for additional shareholder dilution.
Potential for Dilution
However, the company will be required to file a new registration statement with the SEC as Nikola is approaching the maximum amount of $1.2 billion permitted under its existing shelf registration.
In early May, the company had approximately $95 million left under its existing shelf registration, but this number is likely lower today as a result of additional open market sales over the past two months.
Immediate Expectations
With the company facing increased cash usage and the stock price showing signs of life, Nikola is expected to file an automated shelf registration statement on form S-3 at any time now.
Subsequently, the company would be free to increase the pace of open market sales, conduct another public offering or issue additional convertible notes in the very near future and with another dismal quarterly report likely just weeks away, management is expected to take action very soon.
Generously, assuming Nikola being able to raise $300 million in the second half of the year at an average selling price of $10 per share would result in approximately 40% additional dilution for existing equity holders.
Where to Next?
Nikola Corporation’s shares have rallied more than 50% from recent all-time lows after the company reported higher-than-projected Q2 FCEV truck sales.
However, recent changes in the company’s go-to-market strategy are likely to increase cash losses per truck substantially over the next couple of quarters. In combination with higher production volumes, quarterly cash usage is likely to increase materially in the near term.
As a result, Nikola will be required to raise a substantial amount of new capital in the second half of the year.
After shareholders approved a massive increase in authorized shares last month, the company is expected to file an automated shelf registration statement with the SEC at any time now, thus paving the way for increased open market sales or an outright public offering.
DISCLAIMER
You should read and understand this disclaimer in its entirety before joining or viewing the website or email/blog list of SmallCapStocks.com (the “Publisher”). The information (collectively the “Advertisement”) disseminated by email, text or other method by the Publisher including this publication is a paid commercial advertisement and should not be relied upon for making an investment decision or any other purpose. The Publisher is engaged in the business of marketing and advertising the securities of publicly traded companies in exchange for compensation. The track record, gains, upside, and/or losses mentioned in the Advertisement, if any, should not be considered as true or accurate or be the basis for an investment. The Publisher does not verify the accuracy or completeness of any information included in the Advertisement. While the Publisher does not charge for the SMS service, standard carrier message and data rates may apply. To unsubscribe from receiving promotional text messages to your phone sent via an autodialer, using your phone reply to the sender’s phone number with the word STOP or HELP for help.
The Advertisement is not a solicitation or recommendation to buy securities of the advertised company. An offer to buy or sell securities can be made only by a disclosure document that complies with applicable securities laws and only in the states or other jurisdictions in which the security is eligible for sale. The Advertisement is not a disclosure document. The Advertisement is only a favorable snapshot of unverified information about the advertised company. An investor considering purchasing the securities, should always do so only with the assistance of his legal, tax and investment advisors. Investors should review with his or her investment advisor, tax advisor or attorney, if and to the extent available, any information concerning a potential investment at the web sites of the U.S. Securities and Exchange Commission (the "SEC") at www.sec.gov; the Financial Industry Regulatory Authority (the "FINRA") at www.FINRA.org, and relevant State Securities Administrator website and the OTC Markets website at www.otcmarkets.com. The Publisher cautions investors to read the SEC advisory to investors concerning Internet Stock Fraud at www.sec.gov/consumer/cyberfr.htm, as well as related information published by the FINRA on how to invest carefully. Investors are responsible for verifying all information in the Advertisement. As an advertiser, we do not verify any information we publish. The Advertisement should not be considered true or complete.
The Publisher does not offer investment advice or analysis, and the Publisher further urges you to consult your own independent tax, business, financial and investment advisors concerning any investment you make in securities particularly those quoted on the OTC Markets. Investing in securities is highly speculative and carries an extremely high degree of risk. You could lose your entire investment if you invest in any company mentioned in the Advertisement. You acknowledge that we are not an investment advisory service, a broker-dealer or an investment adviser and we are not qualified to act as such. You acknowledge that you will consult with your own independent, tax, financial and/or legal advisers regarding any decisions as to any company mentioned here. We have not determined if the Advertisement is accurate, correct or truthful. The Advertisement is compiled from publicly available information, which include, but are not limited to, no cost online research, magazines, newspapers, reports filed with the SEC or information furnished by way of press releases. Because all information relied upon by us in preparing an advertisement about an issuer comes from a public source, it is not reliable, and you should not assume it is accurate or complete.
By your subscription to our profiles, the viewing of this profile and/or use of our website, you have agreed and acknowledged the terms of our full disclaimer and privacy policy which can be viewed at the following link: www.SmallCapStocks.com/Disclaimer and www.SmallCapStocks.com/Privacy-Policy
By accepting the Advertisement, you agree and acknowledge that any hyperlinks to the website of (1) a client company, (2) the party issuing or preparing the information for the company, or (3) other information contained in the Advertisement is provided only for your reference and convenience. The advertiser is not responsible for the accuracy or reliability of these external sites, nor is it responsible for the content, opinions, products or other materials on external sites or information sources. If you use, act upon or make decisions in reliance on information contained in any disseminated report/release or any hyperlink, you do so at your own risk and agree to hold us, our officers, directors, shareholders, affiliates and agents harmless. You acknowledge that you are not relying on the Publisher, and we are not liable for, any actions taken by you based on any information contained in any disseminated email or hyperlink.
Dean is a freelance content writer who contributes to various Digital Media Companies and independent websites all over the world. He has over 20 years of financial industry experience, so it’s safe to say he’s well informed.
