Aug 7 2020 -


Nikola has a long list of promises to meet in order to reach substantial out year revenue targets.

The stock currently has a billion market cap due to 425 million fully diluted shares outstanding.

The company remains a 2024 revenue story.

Investors need to realize Nikola has 200% upside, but the stock has 90% downside risk over the next few years.

As with most IPOs and newly public companies, the initial earnings report is very volatile. The Q2 earnings report for Nikola (NKLA) was no different from the general market despite the unique method of going public via a SPAC. Whether or not to invest in the stock is more related to whether the zero emissions commercial transportation system company can meet staled promises. My investment thesis remains negative on the stock, considering the huge jump in the public float and the massive valuation for a company that hasn't delivered on revenues yet.

Nikola logo

Image Source: Nikola website

Promises Galore

CEO Trevor Milton is a creative genius similar to Elon Musk of Tesla (TSLA). Anybody only needs to listen to the Q2 earnings call to see how a concept pickup truck with no plans turned into a truck with 89,000 customers signaling interest and an undisclosed deposit list.

The problem for shareholders is that Nikola already had a long list of promises with huge market opportunities. The company is still in the building phase for manufacturing facilities in both Germany and Arizona for their BEV and FECV trucks while starting the Badger trucks and working on hydrogen stations.

  • Commercial agreement for Nikola zero emission BEV trucks by end of 2020.
  • OEM partner for Badger trucks by end of 2020.
  • Hydrogen station collaboration by end of 2020.
  • Completion of modification to the manufacturing facility in Ulm, Germany, by end of 2020.
  • Completion of Phase 1 greenfield manufacturing facility in Coolidge, Arizona, by Q4'21.
  • BEV commercialization by Q4'21.
  • FCEV truck commercialization by 2023.

The only way to judge Nikola this year is how well the company meets the above promises. Not only does the company need to announce an OEM partner for Badger by the end of 2020, but also the partner has to be credible. The same goes for the commercial agreement for the BEV trucks and the completion of the manufacturing facilities in close proximity to targets.

Tesla was famous for missing aggressive targets of Elon Musk, so Nikola isn't going to fall from just missing a date by a few months. The key will be whether the company makes general progress towards the above goals along with the TAM staying in the 0 billion range just for the trucks.

Future Revenues

The company can definitely be judged by meeting the above promises. The stock has a whole host of other issues. The main issue is that the revenue streams don't come online until 2024 in earnest.

The stock already has 424.5 million diluted shares outstanding due to stock options. The market commonly fails to include these numbers in the market valuation since GAAP earnings don't include stock options when the company is losing money. At , the stock still has a rather pricey billion market valuation.


Source: Nikola June 2020 presentation

How well Nikola meets the above promises determines whether the internal revenue targets are legitimate. While investors get excited by the statements regarding billion in orders for FCEV, the revenues aren't reaching market until 2023 when the company completes Phase 3 of the Arizona facility.

With Phase 1 of the Coolidge facility not targeting completion until late 2021 and all of the other work on Badger and BEV production, one can easily foresee a slippage of this target until 2024. The company doesn't target meaningful revenues until 2023, so assuming any slippage makes this stock a realistic 2024 revenue story.


Source: Nikola June 2020 presentation

Nikola has all the promise in the world, but the electric truck space has become more crowded. Remember, Tesla was only worth a similar valuation when the company first got to billion in revenues, and Nikola is still a pre-revenue company for over a year still.

ChartData by YCharts

Tesla trades at about 11x current revenues now, suggesting Nikola could reach a billion valuation in 2025 when analysts have the company potentially reaching billion in revenues. In such a scenario, the stock has 200% upside (not including equity raises), while one can easily envision up to 90% downside on the failure to reach commercial revenue deals.

With all of the shares flooding the market by year end, investors should expect some weakness heading into 2021.


The key investor takeaway is that investors need to realistically understand Nikola remains a 2024 revenue story. The company has a ton of promises they need to deliver on in order to achieve the revenue targets warranting the current billion market cap.

Nikola has substantial risk here, not exactly warranting the potential reward. As the stock price dips, especially on way immaterial delays, Nikola will offer more potential value for shareholders.

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