Latest news with #NKLA
Globe and Mail
24-02-2025
- Automotive
- Globe and Mail
Nikola Just Filed for Bankruptcy. Which EV Stock Will Be Next?
Last week, Nikola (NKLA), once valued at around $30 billion, filed for bankruptcy. The news was not unexpected, given Nikola's cash burn and dilutive shares sales, which were just unsustainable. Things reached a point where Nikola's market cap fell below its quarterly cash burn. This means the company would have needed to quadruple its outstanding share count just to fund its cash-guzzling operations for a year. That was almost impossible, and as I noted previously, Nikola needed a strategic partner who could have backed the company. That did not happen, and Nikola eventually determined that Chapter 11 bankruptcy 'represents the best possible path forward under the circumstances for the Company and its stakeholders.' The company is now looking to sell its assets to a strategic or financial investor. EV Bankruptcies Nikola's bankruptcy is yet another sign that the sun has set for high-flying EV startups that went public between 2020 and 2021, particularly those that opted for a special purpose acquisition company (SPAC) merger instead of the traditional IPO. Nikola is not the first EV startup to have filed for bankruptcy from that lot. Last month, Canoo (GOEVQ) also filed for bankruptcy. The ever-growing list includes Arrival (ARVLF), Bird Global (BRDSQ), Lion Electric, Lordstown Motors, Lightning eMotors, Electric Last Mile Solutions (ELMSQ), Volta Trucks, and Proterra. This list is not exhaustive, and several other companies in the green energy ecosystem have gone out of business. What Went Wrong with the EV Industry? By 2021 it became quite obvious that there was a bubble in EV stocks considering the exorbitant market caps that newly listed companies were commanding. The sector's joyride ended in 2022, when the Federal Reserve started hiking interest rates to curb inflation. This effectively pulled the plug on the supply of easy money, which was the lifeline for startup EV companies. Higher interest rates also make vehicle ownership costly and turned away some buyers from electric cars. Moreover, the demand for EVs didn't turn out to be as strong as expected, and even Tesla (TSLA), which once could sell as many cars as it could produce, reported a year-over-year fall in deliveries for 2024 – for the first time in history. To make things worse, the EV market was heavily oversupplied with both startups and legacy automakers coming up with new models. This demand-supply mismatch led to a price war as companies tried to push sales by lowering vehicle prices. The price war further added to the losses of EV startups, and while legacy automakers have their hugely profitable internal combustion engine (ICE) operations to absorb these losses, startups didn't have such luxury. With capital market conditions hardening, EV companies weren't able to raise cash by selling stock as easily as they did during their heydays. EV Companies' Near-Term Outlook Is Cloudy If these troubles weren't enough for EV companies, Donald Trump's return to the White House adds another layer of complexity. Trump's energy policies are in stark contrast to his predecessor Joe Biden, who took multiple actions to spur EV adoption rates in the U.S. The near-term outlook for EV companies looks cloudy at best given uncertainty over Trump's policies and the still-tepid demand for electric cars. The macroeconomic slowdown and fears of interest rates staying higher for longer aren't helping the cause of the EV industry. Which EV Companies Might Go Bankrupt Next? To survive the current challenging market environment, EV companies need a compelling product, deep financial pockets with backing from strategic investors, and credible management teams. Most startup EV companies that have gone bust lacked in either one or all of these criteria – or worse, were built around lies and fake promises. Looking at the current environment, I believe Rivian (RIVN) and Lucid Motors (LCID) are two names that can stick around for a much longer time as they score well on all three parameters. However, things might start getting problematic for weaker players like Mullen (MULN) and Faraday Future (FFIE). While we cannot be certain about which EV company will go bust next, we can be reasonably sure that Nikola is not the last on that list.
Globe and Mail
19-02-2025
- Automotive
- Globe and Mail
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.
