Stock of the week - Nikola Corporation (10.08.2023)

• Nikola halts over-500% rally after earnings
• Stock erases year-to-date gains
• Slightly better Q2 earnings than expected
• Ambitious deliveries forecast for full-2023
• Shipments of a new truck to begin in September 2023
• Shareholders approve proposal to double share count
• Stock slips below $2.00 mark

Nikola (NKLA.US) is trading little changed year-to-date. The EV manufacturer launched a correction last week, slumping over 40% since and erasing all of the gains made during a recent two-month rally that sent shares over 500% higher. Company released earnings which turned out to be not so bad but approval for massive share issuance and CEO departure are weighing on the stock.

An over-500% rally gets halted

While Nikola was once in the midst of investors' EV craze, the stock has fallen out of inventors' favor with the company saying a few times that it is unsure whether it will be able to continue as a going concern over the next 12 months. Stock currently trades below $2.00 per share - over 97% below its all-time high from June 2020! However, the stock traded even lower than that with an all-time low being reached just slightly above the $0.50 mark in early-June 2023. Sub-dollar valuations are very concerning as the share price staying below the $1 mark for an extended period of time is a reason for Nasdaq to delist stock from its exchange.

Nevertheless, no such thing took place as the stock started to rally. Reasons behind the rally remain uncertain. Some say that the rally was driven by calls from Milton Trevor - Nikola founder, former CEO and current top shareholder - to reshuffle management, others say it was driven by retail investors who have once again turned toward 'meme-stocks'. In any case, stock started to rally and jumped over 500% over the next 1.5-2 months. This rally, however, was halted last week following the company's earnings release.

Nikola (NKLA.US) rallied over 500% after breaking above the long-term downward trendline in June 2023. However, this massive gain is barely noticeable on the D1 chart given how steep previous declines were. Source: xStation5 

Q2 earnings slightly better-than-expected

Nikola reported Q2 2023 earnings on Friday, August 4. While the report showed another unprofitable quarter for the company, results were not that bad, at least not when compared to market expectations. Revenue dropped 15.3% YoY to $15.4 billion but was slightly better than expected by analysts. Operating loss turned out to be slightly deeper than expected while EBITDA loss and net loss turned out to be smaller than expected.

However, the company also said that it has produced 33 trucks during the quarter, down from 50 in the same period of 2022. Shipments were down to 45 from 48 in Q2 2022. Also, Nikola announced that its CEO Michael Lohscheller will step down and Steve Girsky, Chairman of Nikola's Board, will take over. Lohscheller is said to have stepped down due to family health matter. While Nikola failed to turn a corner during almost a year and a half under Lohscheller leadership, this is the fourth CEO change at Nikola in four years and such a high rate of executive turnover is rarely positive.

Nikola Q2 earnings highlights

• Revenue: $15.4 million vs $14.9 million expected (-15.3% YoY)
• Operating profit/loss: -$168.6 million vs -$159.8 million expected ($172.2 million in Q2 2022)
• EBITDA: -$125.1 million vs -$137.2 million expected 
• Adjusted EPS: -$0.20 vs -$0.25 expected (-$0.41 in Q2 2022)
• Net loss: $217.8 million vs $173 million in Q2 2023
• Trucks produced: 33 vs 50 in Q2 2022
• Trucks shipped: 45 vs 48 in Q2 2022

Nikola remains optimistic…

While Nikola is still struggling to turn in profits, the company remains rather optimistic about the future. Company expects a rather mixed quarter in terms of sales, expecting revenue to miss $34.2 million street estimate and come in at $18-28 million (between -25% YoY and +15% YoY). However, truck deliveries are expected to be significantly above Q2 levels. Also, full-year forecasts can be seen as upbeat given that the company expects full-year revenue to at least double compared to 2022 levels and full-year shipments to reach 300-400 trucks. Given that the company shipped 76 trucks in the first half of the year, it means that the second half is expected to be very busy.

This improvement may come from the launch of a hydrogen fuel cell electric truck. Nikola said that serial production of such trucks began on July 31, 2023 and first deliveries to customers are expected to take place this September.

Nikola Q3 2023 guidance

• Revenue: $18-28 million vs $34.2 million expected ($24.2 million in Q3 2022)
• Trucks shipped: 60-90

Nikola full-year 2023 guidance

• Revenue: $100-130 million ($50.8 million in full-2022)
• R&D expenses: $210-220 million
• Trucks shipped: 300-400 trucks

…to some extent

Given that Q2 2023 earnings were slightly better than expected and Q3 as well as full-2023 outlooks are rather optimistic, one may wonder what caused the plunge in Nikola's share price. The answer is simple - Nikola is still unsure whether it will survive. Company said that it is concerned whether it will be able to continue as a going concern over the next 12 months. This is the third such warning since February this year and highlights that outlook is more shaky than the company presented in its financial guidance.

Nikola needs additional capital to survive and grow. Shareholders of the company approved a proposal to issue additional stock in order to shore up capital position. While the company said that approval allows it to double total share count from 0.8 to 1.6 billion shares, Nikola's new CEO Girsky said that the company needs $600 million in additional capital. Nevertheless, as a massive share issuance was already approved, it cannot be ruled out that the company will use it fully. The company has just launched a serial production of its new truck and plans to start shipments in September. Should it turn out to be a success, share issuance of a fully-approved size looks likely as the company would press on with its plans to ramp up production.

Nikola has significantly increased the number of shares outstanding over the past year with share count surging from 433 million in Q2 2022 to 779 million in Q2 2023. Share count may double further following recent approval for stock issuance. Source: Bloomberg Finance LP, XTB Research

A lot will depend on Q3 results

Summing up, the situation with Nikola is tricky. High CEO turnover as well as shareholders' approval to double the number of shares outstanding are not exactly what investors are looking for. Not to mention that Nikola continues to generate losses. Nevertheless, future outlook, especially when it comes to full-year deliveries, looks promising but also challenging. While the company has managed to improve efficiency, it still struggles to make a major turnaround in financials. A lot will depend on how Nikola's business performs in the current quarter (Q3 2023). Should production and shipments of a new truck go as planned, the company could really be on the way to turn profits. However, failure to show a decisive improvement in Q3 results may doom the company's share price.

Taking a look at Nikola chart (NKLA.US) at the H1 interval, we can see that a recent plunge has been very quick and very steep. Stock reached fresh local highs above $3.60 on Thursday, August 3 - just a day ahead of earnings release and CEO departure announcement. Stock slumped below the lower limit of the local market geometry at $2.87, suggesting a reversal in short-term trend. More confirmations came later - break below the $2.75 zone as well as below the upward trendline and 200-hour moving average (purple line). However, downward momentum slowed and the stock is even trading around 2% higher in premarket today.

Nikola (NKLA.US) at H1 interval. Source: xStation5