Nikola Just Filed for Bankruptcy. Analysts Were Still Betting on 650% Upside for NKLA Stock.
Electric vehicle (EV) stocks are in focus after Nikola (NKLA) succumbed to its ongoing challenges and filed for Chapter 11 bankruptcy protection on Wednesday, Feb. 19.
While the announcement can hardly be dubbed a surprise considering the electric vehicle maker first revealed that it was exploring strategic options as early as October, it's still significant given that NKLA was once worth more than Ford Motor (F).
In 2020, another legacy automaker, General Motors (GM), built an 11% stake in Nikola for about $2 billion as well.
However, the EV company's bankruptcy filing this morning suggests it failed to raise new capital or find a potential suitor when it mattered the most. Nikola stock is going for less than 50 cents at the time of writing. Shares are down nearly 98% over the past 52 weeks, and are down 40% in morning trading on Wednesday.
Why Did Nikola File for Bankruptcy?
Nikola ended up filing for bankruptcy because it failed to make good on its promise of commercializing battery-electric and hydrogen fuel cell-powered vehicles (FCEVs).
The Phoenix-headquartered firm produced about 600 vehicles over the past three years, and many of those had defects or were recalled for costly fixes.
Additionally, market-wide challenges, including higher costs of production, insufficient charging infrastructure, and lukewarm customer interest, weighed on NKLA's ability to scale.
As of Feb. 19, Nikola has roughly $47 million in cash, part of which it intends to use for bankruptcy proceedings.
What's Next for Nikola After Bankruptcy Filing?
Nikola is now awaiting the court's approval to start unloading its assets. During this time, the EV maker will use its remaining cash to offer limited service and support to vehicles on the road.
However, the Nasdaq-listed firm will need new capital to extend such activities beyond the end of next month.
Investors should note that Nikola is the latest in a long list of EV makers that have filed for bankruptcy in recent years. These include Fisker, Lordstown Motors, and Canoo (GOEVQ).
Did Analysts Expect Nikola to File for Bankruptcy?
Ahead of Nikola's bankruptcy news on Wednesday, analysts had a mean target of $6 on its stock, indicating potential upside of 650%.
This suggests that analysts had immense confidence in NKLA's ability to avert bankruptcy. They were convinced that the EV maker will raise new capital or find a potential suitor in time.
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