Nikola (NKLA) is establishing itself as one of the most volatile stocks in the market. After climbing nearly 40% on news of the Nikola-General Motors (GM) deal, Nikola’s stock quickly plummeted following major fraud allegations. These fraud allegations are only exacerbating the growing number of problems surrounding Nikola. Even under the best of circumstances, Nikola will have an incredibly difficult time competing in the clean energy transportation industry.
Nikola has experienced great volatility over the past week due to mixed news.
The questions start to swirl
Nikola is one of the most controversial companies in the fast growing clean energy transportation industry. The tech discovery company’s suspicious claims, a seemingly frivolous lawsuit against Tesla (TSLA), and missed deadlines have already attracted a legion of Nikola’s skeptics.
Recent allegations of fraud by Hindenburg Research have greatly intensified the skepticism surrounding Nikola. Hindenburg Research says it has “gathered ample evidence – including recorded phone calls, text messages, private emails, and behind-the-scenes photographs – detailing dozens of misrepresentations by Nikola founder Trevor Milton.”
Hindenburg Research also said it “has never seen this level of deception in a public company, especially of this size.” To make matters worse for Nikola, Citron Research has come out in support of Hindenburg Research and congratulated Hindenburg Research for “exposing what appears to be total fraud.”
Nikola has had tremendous success with these recent short relationships and now has prominent figures in the financial media who question the credibility of the company. Growing investor skepticism will only make it more difficult for Nikola to raise funds and maintain his hype, both of which are vital to the company’s success.
Problems with the main technologies
Even putting potential frauds aside, Nikola’s prospects don’t appear to be strong. Hydrogen fuel cell technology, on which Nikola appears to be placing much of his hopes, is undeniably losing the battle against battery technology. Although hydrogen fuel cell technology may have an advantage in some markets, such as heavy trucking, it is rapidly losing ground to battery technology.
Although Nikola also plans to invest heavily in battery electric vehicles, there is little chance the company will be able to compete with companies like Tesla and a plethora of other major automotive companies entering the industry. In fact, Nikola has yet to deliver a single vehicle, which makes his current $ 12 billion valuation seem even more absurd.
It seems highly unlikely that Nikola will be able to compete against established BEV players like Tesla even in the trucking market.
The GM deal raises even more red flags
Nikola recently reached a deal with GM in which he will give GM a $ 2 billion stake. GM, in return, “will engineer, validate, homologate and build the Nikola Badger and fuel cell electric vehicle variants.” Nikola will also use GM’s Hydrotec fuel cell technology and Ultium battery systems.
While Nikola’s GM deal appears to be a big win for Nikola, it actually raises some red flags. Considering the fact that Nikola previously claimed to be a leader in BEV and fuel cells, the company’s heavy reliance on GM technology is suspect. Nikola appears to bring very little to the GM deal in terms of making the actual product.
Nikola’s reliance on GM’s technology further damages Nikola’s credibility considering his previous claims of technological innovation. It’s odd that Nikola relies so much on GM’s technology when his is supposedly the industry leader. Nikola’s GM deal does little to allay fears surrounding the company’s long-term prospects.
The GM deal only raises more doubts about Nikola’s technology.
Lack of infrastructure
Even in the unlikely scenario where Nikola ends up producing industry-leading fuel cells and batteries, the company simply lacks the infrastructure to compete properly. Billions of investments could be needed to build a rather competitive hydrogen fuel cell infrastructure alone.
Major hydrogen fuel cell companies like Plug Power (PLUG) have failed to live up to the hype surrounding fuel cells. It seems incredibly unlikely that a relatively newcomer like Nikola will be able to do what decades-old fuel cell companies have failed to do.
Nikola will have even more difficulty building a competitive battery infrastructure considering Tesla’s presence. Tesla has already built thousands of supercharging stations, each costing around ~ $ 250,000. The number of supercharging stations will likely only grow exponentially in the coming years.
Considering the fact that Nikola has yet to deliver just one vehicle, his hope of competing in the battery space seems even more ridiculous. With Tesla and some of the world’s largest auto companies investing billions of dollars in BEVs, Nikola has very little chance of surviving in this market.
Nikola is too overrated with its current market capitalization of $ 12 billion. The fraud allegations that Nikola faces will only put further downward pressure on the company’s shares. Furthermore, Nikola’s underlying technology appears to be questionable at best, especially given the details of his GM deal. Investors would do well to avoid Nikola considering all the problems this company faces.
Disclosure: We have no positions in any of the stocks mentioned and have no plans to initiate any positions within the next 72 hours. I wrote this article myself and express my views. I don’t get any compensation for this (other than Seeking Alpha). I have no business relationship with any company whose shares are mentioned in this article.