Categories Analysis, Industrials

Here’s why Nikola’s (NKLA) future looks pretty grim

The lack of investment from GM and the cancellation of the development of the Badger are major blows to Nikola’s growth prospects

Electric vehicle manufacturer Nikola Corporation (NASDAQ: NKLA) has not been having a good time lately. Over the past few months, the company has faced fraud allegations, undergone a change in management and lost a lucrative partnership. The future ahead does not look bright for the Arizona-based company and here is why.

EV market

In general, the electric vehicle market is gaining importance in the wake of environmental concerns and stricter rules against pollution by traditional vehicles. As more countries adopt tougher rules on emission, the adoption of electric vehicles is likely to see a rise. A report by CleanTechnica estimates EV sales in the US to increase 70% year-over-year in 2021 versus 2020.

However, regulatory challenges, high costs and a reluctance on the part of customers to switch to electric vehicles due to the convenience factor that traditional vehicles provide are headwinds in the path to growth for EVs.

Nikola vs. Tesla

Where does Nikola stand amid all this? Nikola was once seen as a company with potential to become a notable player in this industry alongside Tesla (NASDAQ: TSLA) but now its prospects appear to have been dented quite a bit. Tesla has made progress in leaps and bounds and is now a dominant player in the EV market but Nikola currently does not appear to be in any position to compete with its larger rival.

Fundamentals

Let’s start at the top. Nikola has no revenue and the company is still running at a loss. It has no game-changing technologies to justify its market valuation of over $7 billion. The automobile industry is very capital intensive one and Nikola does not have a proper roadmap to raise funding if and when it needs to. Another downside is the additional cash burn the company is likely to go through on its path forward.

Recent hits

The initial partnership with General Motors (NYSE: GM) was seen as a huge win for Nikola as it would have given the company a strong partner in terms of investment and manufacturing capability. However the scaled-down deal which encompasses a simple supply agreement is nothing to get excited about. The lack of investment from GM and the cancellation of the development of the Badger are major blows to Nikola’s growth prospects.

Nikola’s reputation suffered a massive blow on fraud allegations made by Hindenburg Research, the subsequent investigations by regulatory agencies, and the exit of founder and former executive chairman Trevor Milton. The expiry of its lockup period, which paves the way for former CEO Milton and other employees to exit their stakes in the company, is another cause of concern.

All in all, the sentiment on Nikola is currently pessimistic and most experts believe it might be better to wait and watch before making a decision on this stock.

Nikola’s stock has fallen 47% in the past three months.

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