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Nikola (NKLA) – Yea or Nay?

This article kicks off the start of a new series, Yea or Nay where we at CrazyFinances look at a company objectively and decide whether or not to invest. Think of this as a non-biased, extremely shortened version of an equity research piece but we’ll obviously disclose if we do have a position in the company that we’re reviewing. Without further ado, let’s start.

Nikola Corporation is an American company that has announced a number of concept zero-emissions vehicles since 2016 and has indicated plans to produce some of them in the future. The company is based in Phoenix, Arizona, where its research and development facility is located.[1] The company is named after inventor Nikola Tesla.[2]

While Wikipedia usually shouldn’t be trusted for facts, this description is pretty accurate because the Nikola (“company”) has not produced a single vehicle yet despite claiming to have a backlog of orders. Additionally, Nikola is most likely exaggerating the size of its order book as Cowen Equity Research shows U.S. Xpress making up 1/3 of all Nikola orders worth $3.5B in sales despite U.S. Xpress only having $1.3M cash on hand as of Q2 2020.

Additionally, the CEO of Nikola, Trevor Milton, has a history of inflating orders such as misrepresenting a Swift order that was actually worth $16M but claiming that it was a $250M order which ended up being part of a legal battle between the two parties. He has also displayed fraudulent behavior in the past such as claiming to have developed a proprietary gas turbine system during the early days of Nikola while purchasing them from another company, Brayton Energy.

But these are the CEO’s actions in the past; let’s look at the present. It hasn’t become better. A Bloomberg story has revealed the flaws of the Nikola One launch. For starters, the truck reportedly was inoperable at the time of showing and had to power it via a hidden cable that ran through the stage. In January 2018, Nikola released a video of the truck apparently moving on its own accord. However, according to a source who sent texts to Hindenburg Research (which is currently shorting the stock), the truck was actually rolling downhill on a road with a slight grade. Hindenburg later sent an investigator to the site to confirm where the investigator was able to achieve 56 mph in neutral.

Later on, Nikola would merge with a SPAC to list itself publicly and Trevor Milton became rich, at least on paper. However, remember that Milton hasn’t been able to dump all his shares yet because that would cause panic among investors and would depress the stock price. Below is a table that shows how Nikola is trading compared to its peers.

As you can see, despite not making any profits the company is still trading at a high valuation. In fact, looking at their latest financials shows that they’re only making sales off of their solar products. Additionally, just looking at the fundamentals the company is overpriced despite not making a single sale of its trucks compared to its peers such as Tesla or Volkswagen. Since Nikola is unprofitable, we can’t look at the EV/EBITDA multiple and instead have to rely on EV/Sales. Looking at this metric, Nikola and Workhorse are the exceptions except that Workhorse actually has a working product unlike Nikola. Additionally, Workhorse has actually delivered trucks to its customers whereas Nikola hasn’t made a single delivery yet. It just shows that Nikola is simply vaporware and like its stock will be rendered useless. Don’t believe me? Let’s look at their sales figures.

Figures ($mm) pulled from company filings on

Note how in both periods that the company has barely made any sales (and they were listed as solar revenues from company filings) yet Nikola is spending $52.1mm in SG&A in the latest period (other income/expense is mainly R&D). It’s crazy how much money Nikola is burning in a category like this; either management is paying themselves very high salaries or they’re throwing crazy office parties such as spending thousands of dollars procuring prostitutes.

To conclude, there is no future in Nikola unless if there is a management change but that is highly unlikely since the company is still a startup and a key executive such as a CEO leaving would basically mean the death of the company. I would not touch NKLA with a 10 foot pole and I advise you to do the same.

Please do your own due diligence; this article is my own opinion. I do not own any positions in Nikola, either shorting or longing.

2 thoughts on “Nikola (NKLA) – Yea or Nay?”

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