Nikola (NKLA) is establishing itself as one of the most volatile stocks in the market. After rising nearly 40% on the news of the Nicola-General Motors (GM) deal, Nicola’s stock quickly fell as a result of major fraud allegations. These fraud charges are only mitigating the increasing number of issues surrounding Nicola. Even under the best of circumstances, Nicola will have an incredibly difficult time competing in the clean energy transportation industry.
Nicola has experienced great volatility over the past week as a result of mixed news.
The questions started revolving
Nicola is one of the most controversial companies in the fast growing clean energy transportation industry. Suspicious claims of the company’s technological breakthroughs against Tesla (TSLA), seemingly litigation and missed deadlines have already attracted a legacy of Nicola skeptics.
Recent fraud allegations from Hindenburg Research have intensified suspicions around Nicola. Hindenburg Research claims that “extensive evidence has been collected — including recorded phone calls, text messages, private emails, and behind-the-scenes photos — detailing dozens of false statements by Nicola founder Trevor Milton.”
Hindenburg Research also stated that they “have never seen this level of deception in a public company, especially this size.” To make matters worse for Nicola, Citron Research came out in support of Hindenburg Research to highlight “what appears to be a total fraud”.
Nicola has taken a big hit with these recent short reports and is now the top figure in the finance media questioning the company’s credibility. Increasing investor skepticism will only make it harder for Nicola to raise money and maintain its publicity, both of which will be critical to the company’s success.
Issues with Core Technologies
Even setting aside potential fraud, Nicola’s prospects do not appear to be strong. The hydrogen fuel cell technology, due to which Nikola seems to be overshadowing his hopes, is losing the battle against battery technology. Although hydrogen fuel cell technology may benefit in some markets, such as heavy-duty trucking, it is rapidly falling behind battery technology.
Although Nicola also plans to invest heavily in battery electric vehicles, there is little possibility that the company will be able to compete against the likes of Tesla and other major automotive companies entering the industry. In fact, Nicola has not yet delivered a single vehicle, making its current valuation of $ 12 billion more absurd.
It is likely that Nikola will be able to compete against established BEV players like Tesla in the truck market.
GM deal raises even more red flags
Nicola recently signed a deal with GM, in which it would give GM a $ 2 billion equity stake. GM will, in turn, “engineer, validate, validate, manufacture, and produce fuel cell electric vehicle variants,” Nicolo Badger. Nicola will also use GM’s Hydrotech fuel cell technology and the Ultium battery system.
While Nicola’s GM deal seems to be a big win for Nicola, it actually raises some red flags. Considering the fact that Nicola previously claimed to be a leader in BEVs and fuel cells, the company’s heavy reliance on GM technology is questionable. Nicola brings little to the GM deal in terms of making the actual product.
Nicola’s reliance on GM technology further damaged Nikola’s credibility given his previous technology breakthrough claims. It is strange that Nicola will rely too much on GM’s technology when it has its own industry-leading. Nicola’s GM deal may reduce fears about the company’s long-term prospects.
The GM deal only casts more doubt on Nikola’s own technology.
Lack of infrastructure
Even under the potential scenario in which Nikola works to manufacture industry-leading fuel cells and batteries, the company lacks the infrastructure to compete properly. It alone can invest billions in building a somewhat competitive hydrogen fuel cell infrastructure.
Major hydrogen fuel cell companies such as Plug Power (PLUG) have consistently failed to promote around fuel cells. It seems incredibly unlikely that a relatively new upstart like Nicola will be able to do what decades-old fuel cell companies have failed to do.
Given the presence of Tecola, Nicola will have an even more difficult time building competitive battery infrastructure. Tesla has already built thousands of supercharger stations, each costing around ~ $ 250,000. The number of supercharger stations will only increase rapidly in the coming years.
Considering the fact that Nicola has not yet delivered a single vehicle, its expectation of competition in the battery space seems even more laughable. With Tesla and some of the world’s largest automotive companies investing in BEVs without bills, Nicola has little chance of surviving in this market.
Nikola is far ahead in its current market capitalization of $ 12 billion. The allegations of fraud against Nicola will put more pressure on the company’s stock. In addition, Nikola’s core technology seems dubious at best, particularly given the details of its GM deal. Given all the issues facing this company, investors would be prudent to avoid Nicola.
Disclosure: I / We do not have a position in any of the stocks mentioned, and have no plans to initiate any of the positions within the next 72 hours. I wrote this article myself, and it expresses my own opinion. I am not getting compensation for this (other than Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.