By on June 9, 2020

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]

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29 Comments on “Nikola’s Valuation Seems Crazy...”

  • avatar

    Looks a bit like a Raptor.

  • avatar

    Great news: Nikola Tesla didn’t use a middle name that we know of, so there is a once-in-a-lifetime chance for some enterprising OEM to ‘invent’ and announce a middle name for him as part of a branding opportunity.

    I suggest “Mustang”.

  • avatar

    Get an artist to draw up some sexy truck pictures, get them digitized and published, and you have a $26 billion dollar market cap. Easy peasy!

  • avatar
    Art Vandelay

    I’m not the biggest fan of Tesla’s products, but it seems their business plan differs from this company in the fact that they actually build vehicles. Certainly the fact that they have gotten off the ground and now produce 3 models with more factories coming on line puts them in a different class than all of the “Here is a picture of what we are going to build” crowd of companies.

    • 0 avatar

      You’re correct Art and if you back out the carbon credits, Tesla has also proven you can lose a lot of money selling electric cars, even with a couple of free factories and lots of other subsidies.

    • 0 avatar
      SCE to AUX

      Four models:

      • 0 avatar

        GM Cali plant was bought for a song.
        1/10 the land value.

        New Point.
        Tesla’s good luck includes the above and :
        – sales benefit of EV credit.
        – massive bucks from selling ev credits to big three
        – they have the ‘must have’ yuppie car with all the buzz.
        – drunk with crazy money Elton Elon.

        not so good.
        – Poor automotive engineers. I ve worked with them. Not impressed. Sandy Munro study 1 year ago on B I W design is one example.

        • 0 avatar
          Art Vandelay

          I will give them the “got it for a song” because: 1. What else do you do with an empty auto plant…It isn’t like they are a hot commodity. Furthermore automakers of all sorts routinely get sweet packages on land and taxes so it isn’t like Tesla is doing anything different than normal automakers, especially the transplants that build in the south.

      • 0 avatar
        Art Vandelay

        my bad…forgot the X.

  • avatar

    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.

    • 0 avatar

      They know what they are doing, it is called pump and dump. The goal is to let the stock price go up due to popularity of Tesla, then dump it and leave clueless people with the losses.

      I mean so we are on the same page, Nikola announced what, 5 products? And all of them are nothing more than powerpoint presentations.

      There is no way in hell a new company can manage that many products at once. If they grew with time, you can expand your products, but jumping into everything at once reminds me of Faraway Future.

    • 0 avatar

      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”.

  • avatar

    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?

    • 0 avatar
      Art Vandelay

      I think from a fleet perspective, Ford will carry that market. They are a known quantity and the volume of stuff that is available from upfitters should keep them happy. Tesla should do fine. I think they are going to sell a bunch of Cybertrucks to mostly people who weren’t going to buy another pickup. Perhaps some of the lifestyle jeep/Bronco/Taco types too.

      These start ups are difficult to gauge.

      • 0 avatar

        I’m pretty sure Tesla has already forgotten about the Cybertruck. It’s a concept vehicle, a show car, not intended to be produced. And not manufacturable anyway.

        • 0 avatar

          Tesla has built every vehicle they promised to build. They haven’t forgotten about the cybertruck at all, notice how they’ve been looking for a location to build a factory for it.

          They don’t do concepts.

    • 0 avatar
      SCE to AUX

      Ford can’t build electric trucks faster or cheaper than Tesla. Tesla is the electric vehicle leader. Nobody is even close.

      And Ford’s shareholders and Board members will not be in any mood to lose money on electric trucks.

      • 0 avatar

        Tesla nor any of the other E-pickup start ups will be able to produce an EV pickup anywhere nearly as cheaply as Ford. Design and tooling is a significant portion of the cost of a vehicle. No one can touch Ford for economy of scale. The majority of the parts are going to be the same as every other F-150.

        The start ups won’t have a ICE and Hybrid versions to carry the bulk of that overhead.

        So for Ford the incremental investment is only in the unique chassis, motor(s) and batteries. The fact that they dominate fleets means a fairly captive audience that will guarantee a minimum level of sales to amortize that development cost.

        The fleet buyer is highly unlikely to consider any of the start ups when the EV-150 will take the same upfitting equipment and come from the same dealer as the rest of their fleet.

        That isn’t considering the fact that Tesla has crazy plans to make it out of stainless which is more expensive than aluminum and much harder to work requiring tooling that is bound to be more expensive.

        As far as building them faster, the F-series is #1 so they build more of them faster than anyone.

        If you mean get it to market first we will have to see, however Ford has been working on the EV-150 for years and already has a test fleet. Oh and they actually have extensive proving grounds and testing facilities, with areas specifically designed for pickups and 4wds.

        • 0 avatar

          It’s not that simple. EVs need to be designed from scratch to take advantage of their platforms and automation. If you reuse parts from ICE or hybrids, it might lower your overall costs if you plan to build 10,000 of them. But if you plan to build 100,000+ that is a different story. You’ll be putting a lot of extra parts in there to make it work that are unnecessary. And it is harder to do automation too with ICE car parts as they are more complex.

          Then there is the fact that Ford doesn’t really have access to batteries in the way Tesla does. Which means Ford will have to pay more for them while being able produce less due to caps set per manufacturer by the battery suppliers.

          I also wonder how their dealership networks will take it. As we have seen, most dealers push people towards ICE rather than their EVs and know almost nothing about them. They also not willing to deal with the extra work it takes to sell an EV by educating the consumer.

          Last but not least, Ford has little experience working with EVs to begin with. Sure they have testing grounds, but how many EVs do they have that have been on the road?

      • 0 avatar
        Art Vandelay

        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.

    • 0 avatar

      I also can’t imagine it anything more than a ponzi scheme, usually a company releases a product, then goes public to scale the product and take on new products.

      I can’t name a single company off the top of my head that went public before they had any products at all while promising to release multiple different products.

      These kind of things you’d expect from Kickstarter.

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