Nikola Stock Crashes after It Recalls All Trucks and Halts Sales

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Nikola stock (NYSE: NKLA) is trading sharply lower in US price action today after the company announced a voluntary recall of 209 Class 8 Tre battery-electric vehicles and halted sales.

In its release, Nikola said, “Following an August 10 presentation of preliminary findings from Exponent, a reputable third-party investigator, a coolant leak inside a single battery pack was found to be the probable cause of the truck fire at the company’s headquarters in Phoenix, Ariz. on June 23, 2023. The findings were further corroborated by a minor thermal incident that impacted one pack on an engineering validation truck parked at the company’s Coolidge, Ariz. plant on Aug. 10. No one was injured in either incident.”

Nikola recalls vehicles over a fire incident

It said that its internal investigation shows that the likely source of the fire was likely a single supplier component in the battery pack and said that it would commence repairs in the coming weeks.

It however emphasized, “These actions do not affect the hydrogen fuel cell electric vehicle (FCEV) currently in production as the truck’s battery pack has a different design.”

Nikola stock has fallen in August but rallied smartly in July. On July 5, it announced that it has received a grant of $41.9 million from California to build six heavy-duty hydrogen refueling stations across Southern Calif.

It also signed an agreement with BayoTech under which the latter would buy up to 50 Nikola Class 8 hydrogen fuel cell vehicles.

The sales would be spread over five years and the first 12 of these would be delivered between 2023 and 2024. On July 31, the company also announced a deal with J.B Hunt for 13 vehicles.

Nikola is restructuring its business

Nikola is restructuring its business to conserve cash and focus on key priorities. It has exited Europe to focus on North America and is also liquidating Romeo Power. It has also laid off employees and has been lowering its cost base.

Due to these measures, it managed to bring down its cash burn in Q2 2023 to just under $150 million and is looking to bring the annual cash burn to under $400 million by next year. The company is looking to raise more cash and now has the shareholder authorization to increase the authorized capital.

In Nikola’s Q2 2023 earnings release, Nikola CEO Michael Lohscheller said that the company “has turned the corner and is well on the way to executing our business plan and achieving profitability. He added, “We have nearly doubled our unrestricted cash position while also substantially reducing our spending. We continue to drive forward in our mission to decarbonize heavy-duty trucking and ensure Nikola is successful for the long haul.”

That said, earlier this month, Nikola announced that Lohscheller would step down due to a “family health matter” and Stephen Girsky who was the chairman would take over. Nikola now has four CEOs in as many years which shows its leadership woes.

nkla stock

Nikola stock trades at a fraction of all-time highs

When Nikola went public in 2020, it was among the first EV SPACs (special purpose acquisition companies). At its peak in 2020, the company’s market cap was in excess of $30 billion and it surpassed Ford’s then valuation.

It was among the early signs of an impending bubble in EV stocks. However, thanks to the Fed’s accommodative monetary policies and scores of SPACs hunting for EV targets, the bubble continued to build and only got bigger by the end of 2021.

The SPAC bubble has since burst and many de-SPACs, or the companies that went public through SPAC reverse mergers are now fighting for survival.

Nikola now trades at a fraction of its 2020 highs. It fell in 2021 and 2022 and after the recent fall, it has yet again turned negative for 2023. The company has also received a delisting notice from Nasdaq for not meeting the minimum exchange listing requirements.

EV industry

To be sure, Nikola is not the only company that has got the warning. In the EV (electric vehicle) space only, Arrival, Canoo, and Lordstown Motors have received delisting warnings from the exchange for not satisfying the minimum listing conditions.

Between 2020 and 2021, loss-making companies were able to raise capital quite easily due to the availability of easy money.

Now, as Fed has raised rates to multi-year highs, startups face a funding winter. Even some of the listed names are facing trouble raising funds as not many investors are willing to back perennially loss-making companies with unproven business models.

As for Nikola, like other startup EV companies, the road ahead looks quite bumpy amid a deteriorating economy and rising competition in the EV industry.

EV price war

Many startup EV companies are finding it hard to survive and last month Lordstown Motors filed for bankruptcy.

Making EVs is a capital-intensive business and companies post losses in the initial years. Even Tesla took over 15 years to turn sustainably profitable. With the EV competition increasing with every passing day, the troubles might continue to mount for loss-making startup companies especially as the funding environment continues to deteriorate.

The EV price war which is getting worse with frequent price adjustments from Tesla is not helping matters for startup EV companies.

Nikola is also expected to raise more cash to survive, which would however mean even more dilution as the company’s outstanding share count has already more than doubled since its 2020 listing.

About Mohit PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA in finance as a major. He has over 15 years of experience in financial markets. He has been writing extensively on global markets for the last eight years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.