Nicola Corporation (NASDAQ: NKLA) shares continue to experience epic volatility as a result of dramatic developments over the past few days fueled by wild price swings. The pre-revenue company is currently facing perhaps the toughest challenge of its corporate existence, resulting in a fight between bulls and bears not only on the stock exchange but also on Twitter and other social media platforms as investors right their person Let’s try to stay. Thesis on what the future holds for Nicola.
While the situation is as unpleasant as ever, Nicola Bull believes the company is being unfairly targeted by short-sellers. At the other end of the spectrum, the company’s detractors consider it a sinister rebirth of the infamous Theranos saga. In today’s post, we will try to objectively assess the current situation and then synthesize what this endless parade of accusations and counter-charges for the stock price is.
First, let’s have a quick overview of the current situation. Early last week, Nicola accused its stock of bullish sentiment when it announced a strategic partnership with General Motors (NYSE: GM). We have covered the minutiae of this arrangement in previous posts. In a nutshell, GM will provide batteries, fuel cells and other necessary components for Nikola’s Class 8 electric trucks. The auto giant will also manufacture the company’s much-awaited Badger electric pickup truck. In return, GM will get an 11 percent stake in Nicola for about $ 2 billion. It will also receive another $ 2 billion in compensation for providing services, along with providing access to key parts and components, including $ 700 million in production-related costs. Finally, GM will receive a lion of the tax credit generated by retailing the Badger truck. On September 8, when the deal was announced after the holiday weekend, the stock jumped an astonishing 40 percent relative to the $ 35.55 closing price registered the week before.
However, the situation worsened when Hindenburg Research on Thursday (10 September) published a scathing report making two major allegations against Nicola. The first claim is that Nicola, contrary to its public claims, does not possess any revolutionary or proprietary technology related to batteries and hydrogen fuel cells, as is evident from the fact that it is GM’s under-development Ultium battery system and Hydrotruff is using fuel cell technology. Badger Pickup Truck. The second charge considered Nikola’s alleged deception as planned deception. You can proceed to our dedicated post on this subject. Subsequently, on 11 September, Citron Research also publicly appeared in support of Hindenburg’s findings against Nicole.
Congratulations to Hindenburg for exposing what appears to be total fraud $ NKLA. Citron will cover half of all legal expenses. You cannot remove the truth. Explain why Milton sold for $ 10 this June $ NKLA An SEC investigation to maintain the integrity of the response warrant EV mkt
– Citron Research (@CitronResearch) September 11, 2020
While the allegations were damaging in their own way, this nervous reaction from Nicola added fuel to the temporal fire. First, the company’s executive chairman, Trevor Milton, announced on Twitter that he would provide a formal rebuttal to Hindenburg’s furious attack in late Thursday. The deadline for this anticipated rebuttal was moved to Friday:
Worked on Hindenberg’s rebuttal for 14 hours to provide a clear, factual, less-emotional response to the report. This market will be out before opening and working at night. I like every answer very well. They wanted maximum loss, it did not work. Now back to development.
– Trevor Milton (@nikolatrevor) September 11, 2020
That day, however, Nicola published a brief statement, which tried to initiate legal action against the research house. Trevor Milton made this announcement on Twitter.
Nicola retained counselor Kirkland & Ellis LLP outside and authorized them to reach the SEC directly. The allegations are false and fraudulent. However, on the advice of counsel, I will not further state that we have included the SEC. It is in their hands and I pic.twitter.com/k1Cz3Hymca
– Trevor Milton (@nikolatrevor) September 11, 2020
However, absent was the razor-sharp retort that the wider public expected. This development triggered another major phase of celloff. As an example, Nicola shares ended the week upside down relative to the intraday peak of $ 53.98 reached on Tuesday, effectively through a momentary announcement of a partnership with GM.
Before exposing what scenario Nicola investors should now expect in the coming days and weeks, let’s address the cosmic elephant in the room – the symmetry with the company’s infamous Theranos saga. As a refresher, Theranos was of unprecedented interest a few years ago as the company claimed a proprietary blood test using its Bespoke automated equipment requiring only a fraction of the amount of blood required by normal laboratory-based testing. However, the turn came when in 2015, two medical research professors, along with John Carreau of the Wall Street Journal, raised serious questions over the feasibility of these proprietary blood test devices. This dramatic performance exposed several lawsuits as well as punitive measures from the SEC. As the screen of the metaphor fell to the conclusion of this saga, Theranos – the high-flying CEO of Elizabeth Holmes – lost a fortune of nearly $ 4.5 billion.
Let us now investigate Nikola’s case against this background. On the surface, the two companies are very comparable. Trevor Milton and Elizabeth Holmes share an idea to highlight the qualities of their companies, gaining personal benefits in the process. Both have some complicated relationship with simple truths, often resorting to hyperbole to generate propaganda. However, their cases differ in one important aspect – technical feasibility. While Theranos was potentially similar to a Dude product, humming the shady corners of the Internet, Nicola actually has a viable path towards fulfilling its hypnotic promises as a result of its much-hyped deal with GM. However, in an important caveat, GM’s proprietary battery and hydrogen fuel cell technology is not yet ready for commercial deployment. However, GM’s association with Nikola increases the weight further, reducing the skepticism involved in the process. Of course, major questions remain about Nikolay’s own hypnotic assertions, which relate to battery technology and other integral components. To do this sum, while Nicola has much to answer for, it is unlikely that Theranos-scale is fraud.
As far as the way forward for Nikola shareholders goes, it will likely involve too much toilets and pain. One thing that is completely disgusting is uncertainty. Given Nicola’s current strategy to involve the SEC in its tussle with Hindenburg Research and the glacial pace at which this process operates, uncertainty – and its weight – will be the order of the day for Nicola stock. When paired with Trevor Milton’s irregular tweeting pattern, the company’s oxen should brace for wild whipsaw gait and gearing. Of course, much of this prevailing uncertainty can be resolved if Nikola produces evidence of using on-board propulsion of its Class 8 electric trucks. We will not wait for development with this breath though. Also, if GM ever decides to move away from Nicola, all hell will break loose as this partnership is now the only company to emerge.
Meanwhile, Nicola Bullock may seek solitude in the following quote from Baron Rothschild, an 18th-century British nobleman and a member of the Rothschild banking family:
“Time to buy is when there is blood in the streets.”
For Nikola’s inhibitors, the allegations by Hindenburg and Citrone could serve as an effective retaliation. Either way, Nicola is not soon to turn boring!