Nikola's Valuation Seems Crazy

Matt Posky
by Matt Posky

Nikola, the Phoenix-based EV startup that hopped on the Nasdaq last week, finds itself awash in capital despite not having much to show for itself it terms of sellable product.

No matter, as it doesn’t take a sound business model or originality to thrive on Wall Street. Nikola hasn’t even seen fit to come up with a unique moniker for itself and instead uses the scraps left by Tesla Motors’ not using the full name of the inventor that serves as its inspiration. However, Nikola is designing battery/hydrogen-driven semi trailers and pickup trucks — which are the freshest fad in the industry at present. Investors took notice and pushed Nikola’s market cap past $26 billion on Monday. It just kept climbing, too, with only the eventual promise of product and profitability to spur them on.

While one could argue this is not all that different than Tesla’s trajectory (which has also been wildly overvalued), Nikola’s share price exploded almost overnight. Attention was thrust onto the brand after it started seeking cash in May to go public in a reverse merger. The plan was to join with VectoIQ Acquisition, a Nasdaq-listed, publicly traded special purpose acquisition firm, and ride it out on the stock market as a new/old entity.

The move worked, sending its share price through the roof for reasons none of us seem equipped to accurately discern. On Monday, the already sky-high valuation doubled on itself and continued to climb through the rest of this week.

From Bloomberg:

The $34 billion market capitalization Nikola had at the [Tuesday] intraday peak belies the company’s fundamentals. Nikola is forecasting zero revenue for 2020 and its first $1 billion year in 2023. It doesn’t expect to be fully utilizing an Arizona assembly plant that it hasn’t built yet until 2028.

And yet Ford Motor Co., which is expected to report about $115 billion of revenue for this year, has trailed Nikola by market cap at several points in intraday trading. Many skeptics have questioned for years how much electric-car maker Tesla Inc. should be worth. But with Nikola, investors have taken appraisals of zero-emission vehicle manufacturers named after a celebrated Serbian-American inventor into the stratosphere.

“People are looking at this as the next Tesla, and they’re being stupid. Investors are being ridiculous,” Sam Abuelsamid, a transportation analyst at research firm Guidehouse Insights, said by phone. “While I think the tech absolutely has the potential to be disruptive, I don’t know that Nikola in and of themselves are, necessarily.”

Startups need funding to get the ball rolling, but we’ve seen truckloads of cash poured into some with little to show for it. While it’s too early to tell what kind of startup Nikola will be, we remained shocked at the bizarre amount of faith investors seem to have in it. Thus far, the brand has promised to deliver electric Class 8 heavy-duty trucks by the end of next year — starting with the Euro-market Tre — and follow that up with hydrogen variants in 2023. The current plan is to lease them to companies using rates that it believes will be competitive with owning and operating diesel trucks.

It has also said it will soon begin taking reservations for a smaller pickup model called the Badger. Unfortunately, that unit won’t exist unless it partners with an established automaker for production. That partner has been hinted at, though no one’s naming any names. Either way, we’re of the mind that this announcement is probably what got already eager investors to further widen their wallets on Monday. Wall Street has shown itself willing to jump the gun whenever green tech (apparitional or legitimate) is on the line.

While the brunt of its business currently takes place in Europe, Nikola is planning to build a 1 million square foot facility near Phoenix and hopes to expand the nation’s paltry hydrogen fueling network in order to make the manufacturing of FEVs make any sense. From there, it plans to expand its offerings and work on getting the facility operating at its maximum capacity — a task it doesn’t foresee completing until 2027.

It’s ambitious for a company with zero revenue, but that doesn’t necessarily preclude it from being a success. The real danger seems to lie with Nikola’s insistence that hydrogen power is the way to go when there’s not much evidence to support the claim. Likewise, we’ve heard countless engineers tell us there’s a severe scaling problem when it comes to battery technology. The bigger the payload, the bigger the battery needs to be to achieve a useful range… thus increasing weight… requiring more energy. Before you know it, you’re going around in circles. Modern batteries may not be sufficient to support the kind of energy density required for long-haul trucking. Still, everyone claims another breakthrough lies just around the corner and, to be fair, battery technology has evolved quite a bit over the past decade.

As for the insane share price, we’ve given up trying to predict how investors respond to the automotive industry. It hasn’t made sense in years.

[Images: Nikola]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Inside Looking Out Inside Looking Out on Jun 09, 2020

    Investors are not idiots. They are rational people.They know somethings we don't and they already made a lot of money trading Nikola stocks. What I know is that we are on inflection point right now. Things start changing dramatically and then even faster. I will not be surprised if by 2024 we establish permanent US lunar base and all ICE vehicles will be banned all around world.

    • See 1 previous
    • AnalogMan AnalogMan on Jun 10, 2020

      There are some very smart, insightful, truly brilliant investors out there. Warren Buffet stands out as one of if not the greatest of all time. But after having worked with 'investors' for over 35 years (from the side of companies, including >25 years at several start-ups), I think most 'investors' are greedy imbeciles. They are lemmings, and follow other investors and trends (they call it 'momentum investing'). EVs and Tesla are hot, so many jump on whatever sounds similar and 'ride the wave' (or as they call it, 'surf investing'). Yes, you can make money playing these kinds of games, but you have to be careful, lucky, and have good timing, and it doesn't mean the company is actually making anything. The 'market' is supposed to be rational and may be in the long term, but not in the short term or necessarily for individual companies. Just look at the overall stock market right now - the world is in the early stages of deep global recession, the COVID-19 pandemic is far from over, yet the stock market is soaring. As a finance professor in business school once told us, "The stock market is a great place to make a small fortune - out of a much larger one".

  • DenverMike DenverMike on Jun 09, 2020

    How isn't this a ponzi scheme? Even if there is real products? As far as EV pickups go, Ford can do it cheaper/faster/sooner, and what if Ford decides to sell them at a huge loss, 10's of 1,000's less than theirs?

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    • Art Vandelay Art Vandelay on Jun 10, 2020

      @SCE to AUX Ford builds close to a million F Series trucks alone every year. They are rightfully criticized here and other places for many of their business decisions, but any company that underestimates them with respect to pickups does so at their own peril.

  • Rust-MyEnemy Whoa, what the hell is wrong with Jalop1991 and his condescension? It's as if he's employed by Big Plug-In or something."I've seen plenty of your types on the forums....."Dunno what that means, but I'm not dead keen on being regarded as "A type" by a complete stranger"" I'm guessing you've never actually calculated by hand the miles you've driven against the quantity of gas used--which is your actual miles per gallon."Guess again. Why the hell would you even say that? Yes, I worked it out. Fill-to-fill, based on gas station receipts. And it showed me that a Vauxhall Astra PHEV, starting out with a fully charged PHEV battery, in Hybrid mode, on my long (234-mile) daily motorway daily commute, never, over several months, ever matched or beat the economy of the regular hybrid Honda Civic that I ran for a similar amount of time (circa 5000 miles)."You don't use gasoline at all for 30-40 miles as you use exclusively battery power, then your vehicle is a pure hybrid. Over 234 miles, you will have used whatever gas the engine used for 200 of those miles."At least you're right on that. In hybrid mode, though, the Astra was using battery power when it wasn't at all appropriate. The petrol engine very rarely chimed in when battery power was on tap, and as a result, the EV-mode range quickly disappeared. The regular hybrid Civic, though, deployed its very small electric reserves (which are used up quickly but restore themselves promptly), much more wisely. Such as when on a trailing throttle or on a downward grade, or when in stop-start traffic. As a result, at the end of my 234 miles, the Civic had used less gas than the Astra. Moreover, I hadn't had to pay for the electricity in its battery.I look forward to you arguing that what actually happened isn't what actually happened, but I was there and you were not."Regardless, that you don't understand it appears not to have stopped you from pontificating on it. Please, do us all a favor--don't vote."You really are quite unpleasant, aren't you. But thanks for the advice.
  • Tassos Jong-iL Electric vehicles are mandated by 2020 in One Korea. We are ahead of the time.
  • 1995_SC Can you still get some of the tax credits under the new program?
  • Analoggrotto HyundaiGenesisKia saw this coming a long time ago and are poised for hybrid and plug-in hybrid segment leadership:[list=1][*] The most extensive range of hybrids[/*][*]Highest hybrid sales proportion over any other model [/*][*]Best YouTube reviews [/*][*]Highest number of consumer reports best picks [/*][*]Class leading ATPs among all hybrid vehicles and PHEVs enjoy segment bearing eATPs[/*][/list=1]While some brands like Toyota have invested and wasted untold fortunes into full range electric lineups HyundaiKiaGenesis has taken the right approach here.
  • EBFlex The answer is yes. Anyone that says no is just….. wrong.But the government doesn’t want people to have that much freedom and the politicians aren’t making money off PHEVs or HEVs. So they will be stifled.
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