Nikola’s (NASDAQ:NKLA) earnings report this morning presented a sort of do-or-die opportunity for the electric vehicle startup. The past three months have seen the truck maker attempt a full 180-degree turn, inking a number of new deals in an attempt to put its turbulent past behind it. Following the unceremonious departure of founder Trevor Milton last summer, NKLA stock has seen a steady-yet-steep decline, shedding nearly 50% of its share price. Following today’s earnings call however, prospects are up. On an otherwise dreary day for the markets, NKLA stock closed up nearly 20%.
Source: Stephanie L Sanchez / Shutterstock.com
During NKLA’s fall from grace, many investors dismissed the company as a lost cause, a pre-production electric vehicle business with a largely unjustified market capitalization. General Motors (NYSE:GM) even backed out of its planned partnership following the onslaught of fraud allegations.
In recent months, however, the EV company has seemingly done everything in its power to regain investor trust. It has signed a number of promising deals, reached a settlement with the U.S. Securities and Exchange Commission (SEC), earned an important California emissions distinction, and even delivered its first series of pilot trucks.
Today’s earnings call presented Nikola with an important opportunity to illustrate the degree to which the company has bounced back.
So, did Nikola deliver in its earnings report this morning?
Nikola Investors Eager to Hear Results of Recent Deals
Nikola’s latest deals were a major focus of today’s earnings call, and with good reason.
Since October, Nikola has signed a plethora of purchasing agreements, primarily in the form of letters of intent (LOIs). After testing out a limited number of pilot trucks, the LOIs give Nikola partners the option to purchase a larger fleet by a set deadline. Given Nikola’s controversial past, on top of recent supply constraints, the LOIs presents a win-win opportunity for the EV company.
Firstly, the LOIs give Nikola more time to produce more vehicles. The company delivered its first truck just two months ago and is still dealing with supply-chain bottlenecks. The time between its initial deliveries and additional purchases allows the company more wiggle-room to enhance production capacity. While the company has presented a timeline for production expansion, it’s still a multi-faceted problem that won’t solve itself overnight. The recent departure of supply-chain leaders presents an additional element of uncertainty.
Moreover, the LOIs grant companies the flexibility to determine if and when they want to move forward with further purchases. Much of this morning’s earnings call was spent highlighting progress made in Nikola’s previously signed LOIs.
PGT Trucking, Heniff Transportation, USA Truck (NASDAQ:USAK), SAIA (NASDAQ:SAIA), Total Transportation Services and Covenant Logistics (NASDAQ:CVLG) have each signed LOIs for between 50 and 100 Nikola Tre Battery Electric Vehicles (BEVs), or Fuel-Cell Electric Vehicles (FCEVs). As per today’s earnings call, Heniff has already moved forward with the deal. Heniff has agreed to go through with the acquisition of 90 additional trucks, following delivery of its initial 10 units later this year.
Nikola’s Recent Supply-Chain Struggles Force New Partnerships
Nikola investors have been cautious lately as reports of supply hiccups present an immediate threat to the company’s production timeline.
To address this, the startup has made a number of deals to facilitate a smoother supply line. This includes last month’s partnership with Proterra (NASDAQ:PTRA), which signed on to be one of Nikola’s dual-source battery makers, joining LG, which agreed to produce batteries for Nikola last November. Despite being highlighted in Nikola’s earnings call this morning, the battery deals have received a lukewarm response from investors. Many believed Nikola would be producing its own batteries for its trucks.
Indeed, in 2019, Nikola claimed to have created the world’s first free-standing electrode automotive battery. The company stated the battery was 40% lighter than the lithium-ion equivalent used in Tesla (NASDAQ:TSLA) cars, with four times the energy capacity, and half the cost. The notion of an EV company producing in-house batteries was a strong selling point for Nikola early on. Unfortunately, this claim was proven inaccurate and was even used against Milton in the SEC’s complaint.
In the years since its in-house battery plan fell flat, Nikola has been playing a game of leapfrog with battery makers
In 2020, GM briefly signed on to produce the hydrogen-powered fuel cell for Nikola’s Badger truck. Unfortunately, the deal was short-lived. Nikola eventually refunded all preorders for the Badger and General Motors separated itself from the partnership.
Batteries aren’t Nikola’s only supply chain issues, however. Earlier this month, Electrek reported the company had lost nearly all of its supply chain leaders over the past few months, and subsequently put a hiring freeze in place. Nikola has since denied any impact on its supply chain, even tweeting out a picture of recent hires. However, as Reuters verified, Nikola has, in fact, seen the departure of a number of high-level supply chain managers recently. This includes Matthew Jenkins, former director of supply chain and purchasing.
Here are some of the 95 passionate new hires who have joined Nikola since Jan. 1, 2022. We love welcoming new faces week after week! #TeamNikola pic.twitter.com/xaXW5ZUkMI
— Nikola Motor Company (@nikolamotor) February 16, 2022
As such, this morning Nikola jumped at the opportunity to put investors’ worries at ease that its production timeline is still sound. Nikola announced expectations to deliver 300-500 Tre BEVs to customers this year, which actually exceeds Wall Street estimates.
Nikola Investors Need to See Sound Financial Results
Despite all the promising developments Nikola has lined up over the past few months, at the end of the day, cash is king.
While it isn’t uncommon for modern startups to remain unprofitable for years, Nikola has quickly burned through its grace period. For investors to truly reclaim the EV maker, Nikola needed to demonstrate a legitimate path to revenue growth. Based on its share price alone today, investors were clearly pleased by the outlook Nikola offered.
Ahead of today’s earnings call, analysts expected Nikola to post a loss per share of 32 cents on $2.2 million in revenue. The truck maker reported an adjusted loss of 23 cents per share, with essentially no revenue. Lack of revenue clearly didn’t deter investors, especially as there appears to be a plan in place.
In addition, investors were curious to hear feedback regarding a number of financially charged Nikola news items. Likely topping the list is the $125 million Nikola agreed to pay to the SEC in settlement charges in December. For a company with only $522 million in current assets, a $125 million dollar fine presents a steep burden. While Nikola reiterated its intentions to seek compensation from Milton for the charges, the truck maker didn’t provide any further details.
Nikola also updated investors on its recent California emissions distinction. In January, the Tre BEV was deemed eligible for the Hybrid and Zero Emissions Truck and Bus Voucher Incentive Program. This means California purchasers of the Tre Bev can receive an up-to-$150,000 incentive to reduce ownership costs of the vehicle and encourage emissions-less trucking.
Nikola Delivers in Vital Earnings Call
Nikola is a company in flux.
After a roller coaster year, Nikola continues to make major changes in pursuit of investor confidence. Today’s earnings call may well have been Nikola’s greatest opportunity to regain the court of public opinion. And by many counts, the truck maker seized the moment. It reported an optimistic outlook for its production timeline, beat expectations, and offered transparent insight into its goals for the year. Nikola likely put many investors’ concerns to rest this morning, and today’s stock price movement reflects that.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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