Time to seriously consider Nikola stock as production begins

Nikola (NASDAQ:NKLA) Delivered better-than-expected results during the second quarter as the company produced over 50 Nikola TRE webs and distributed to over 48 dealers during the quarter. The company remains on track to deliver 300-500 trucks during the financial year and continues to see significant improvements in its FCEV auto-pilot programme. Total revenue came in at $18 million and earnings per share came in at -41 cents. After giving better-than-expected results, trading in the shares gained 5 per cent.


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“Our momentum continued during the second quarter as we began to distribute production vehicles to dealers and identified revenue from the sale of our Nikola Tre BEVs,” said Mark Russell, Nikola’s Chief Executive Officer. “We are committed to executing on our second half milestone.”

Nikola and the Trucking Industry

Nikola Electric continues to produce several models of fuel-cell electric vehicles and energy solutions. Currently, the company produces only one model, the TRE BEV, a heavy-duty electric truck. But after 2023, the company plans to launch two fuel-cell trucks, which should result in a significant increase in production. Nikola is also working on a variety of energy solutions, including providing hydrogen infrastructure, and investors are looking more closely at Nikola’s fuel cell operations than they are in their electric vehicle operations, although electric trucks should be just as lucrative. Nikola also continued to improve its energy infrastructure during the quarter and now has operating stations in several new locations, including Long Beach, Calif.
Currently, the heavy-duty truck industry is worth $200 billion and is expected to grow at a CAGR of 6-7% over the next 5 years. With a significant push toward reducing trucks and reducing emissions, Nikola is on the cusp of a very lucrative future. However, it remains to be seen what the demand will look like once the incentives are lifted. But for now, as long as it can ramp up production, the company remains in a strong position.

The average Nikola truck costs around $275,000, which is much higher than the $170,000 for the traditional model, but expects to entice buyers by offering a range of deals, including credit lines and vouchers, depending on the state. ranges from $150,000 to $180,000. The combination of vouchers and credit lines makes trucks relatively inexpensive and many truck drivers can be seen switching from the traditional model. The company also had plans to build electric pickups, but canceled them due to a lack of viability, resulting in the stock falling.

Liquidity remains a concern, and is likely to weaken further

Nikola stock is down more than 42% from its 52-week highs primarily due to a number of concerns generated over the past quarters. The biggest issue for Nikola is the cash burn rate, which currently stands at about $273 million in terms of losses from operating activities. If Nikola continues to burn cash at this rate, the company will have to continue reducing shares going forward. During the current quarter, management approved the dilution of 200 million shares, increasing the number of shares from 600 million to 800 million. The company also raised $200 million in private convertible notes during the quarter and now has total liquidity of $840 million, which should keep it liquid for 3-4 quarters. But, the burn rate should probably remain an issue until mid-2023, and if its supply chain or production issues affect production, it could continue to generate negative cash flow well into 2024.

Financial outlook and valuation

The company stands to generate revenue of approximately $135-$150 million in 2022, and this number is expected to reach $650-800 million in 2023, but if Nikola meets its production target of 3500 trucks, it will The number could go up to $1 billion. ,

The company is currently trading at a market capitalization of $3.2 billion, which would indicate 30x the price-to-sales in 2022 and 3x the sales in 2023. Considering that Nikola should make a significant profit from the voucher program for a few years, sales could easily reach 10,000 to 15,000 trucks by 2024. Compare the numbers to the likes of Daimler, which sold 71,000 Class-8 trucks in 2020 alone, and the potential remains bright for the company.

Nikola’s stock could see significant growth if it can execute on production, meet its forecasts, and reign in cash burn. The future could be very attractive for the company, with several tailwinds driving revenue over the next few years.