Nikola stock dropped over 20% on Monday as nervous longs exited their positions and the shorts increased their bearish bets. This comes after the electric vehicle company registered to sell up to 23.9 million shares and time-to-time sales of up to 53.39 million shares and 890,000 warrants from shareholders. The private warrants were originally issued in a private placement tied to the IPO of VectoIQ. Here is what founder Trevor Milton had to say:
S1 has gone affective finally! All the fear mongering is insane and it'll be nice having the Pipe investors registered. It'll show who's long and who's not. The fear mongering can go away finally. It's difficult going ipo and after this, we're full steam ahead.
— Trevor Milton (@nikolatrevor) July 17, 2020
We agree with his statement. Nikola stock will go up and down. The true-believers will continue to hold and buy the dips as the long-term story remains intact for Nikola.
About Nikola Stock
Before we get into our analysis, here’s a little background info for those that aren’t familiar with Nikola stock. On June 4th, electric heavy-truck maker Nikola began trading on the Nasdaq after its merger with VectoIQ (VTIQ) was approved by shareholders. The IPO provided Nikola with more than $700M in new cash, much of it from a transaction involving Fidelity Investments and P. Schoenfeld.
Founded in 2014, the company has developed a series of all-electric Class 8 trucks that can be powered by batteries or hydrogen fuel cells. It has over 14,000 preorder reservations for the trucks, representing more than $10B in potential sales.
Reasons To Be Bullish On Nikola Stock
Here are just a few reasons to be bullish on Nikola stock. First up, Nikola’s execution post-IPO has been phenomenal. They’ve ordered electrolyzers for 5 new H2 stations related to Budweiser deal. The company has fully demonstrated its semi-truck, even 0-60 mph in 5 secs, which put to bed all operational issues. Nikola is about to break ground on its Arizona factory soon.
Nikola also initiated Iveco JV and TRE production from Germany, and fully answered and confirmed the power purchase arrangement for their stations. The company possesses a rock-solid management team and dream partnerships, with plenty of cash to hit milestones.
Lastly, check out the Nikola Two!
Hydrogen vs Electric
One of the biggest debates concerns whether electric or hydrogen power makes the most sense. Hydrogen-powered vehicles have never caught on in the passenger car space because of very little investment in the necessary infrastructure.
Nikola’s pitch has always been that hydrogen power makes a ton more sense in a commercial application. Since many commercial trucking routes run point to point, it’s easier to identify where hydrogen stations should be built. Nikola has argued that hydrogen trucks are even better suited for the task of long-haul trucking than battery-powered vehicles for a few reasons. It takes far less time to fill a tank than it does to charge a massive battery.
Battery-powered big rigs also face a conundrum. They need big battery packs to generate sufficient range, especially with a trailer attached. But the bigger the pack, the more the truck weighs, ultimately limiting how efficient it can be.
Nikola vs Tesla
Nikola and Tesla are both battling for Anheuser-Busch as a customer. Here, Nikola is winning. The maker of Budweiser has an order for up to 800 Nikola trucks compared to just 40 trucks from Tesla. Anheuser-Busch’s new sustainability effort centers around the company wanting to power its entire “dedicated fleet” (aka the trucks it directly operates in its supply chain) with renewable energy by 2025. That dedicated fleet maxes out at about 900 trucks, the company says, which accounts for about a third of its distribution network. Nikola’s trucks will be “critical” for meeting that goal, according to Ties Soeters, Anheuser-Busch’s vice president of logistics procurement.
Nikola stock is a rare pure play on zero-emission commercial trucks, whose adoption is poised to take off, driven by global regulations. Its fuel-cell solution which bundles electric truck, hydrogen fuel, and full service and maintenance in one contract priced at a lower cost of ownership than traditional trucks, is attractive to fleet operators and will generate solid revenue for Nikola and attractive returns throughout the life of the vehicles.
Over the next one to two years, we believe Nikola stock will continue making new highs. The story is there. Market demand exists. The market potential is enormous. Buckle up and enjoy the hydrogen lift-off in Nikola stock.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in NASDAQ:NKLA or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article.