Why JPMorgan's 'Transportation Disruptor' View on Nikola Has Some Caution

Watching the explosive move higher in shares of Nikola Corp. (NASDAQ: NKLA) has been nothing short of awe-inspiring. For a company that basically has no revenues, it was already being touted as the “Tesla of Trucks.” It is also not alone in the space, but its shares have bloomed in 2020.

Monday’s top analyst upgrades and downgrades included a report on Nikola from JPMorgan. While the firm initiated coverage with only a Neutral rating and a $45 price target, which was handily under its $65.90 prior closing price, the firm does have some interesting points. It should be noted that this is only the second analyst report on Nikola to be issued by a larger brokerage firm.

JPMorgan believes that Nikola is poised to disrupt the transportation industry. While nearly 30% downside might not sound like a great endorsement, this stock was handily lower before converting from a special purpose acquisition company (SPAC).

JPMorgan does see risks as high with no real revenues to this point, but the firm does see its mode of a fast deployment of hydrogen infrastructure and its fuel-cell-powered long-haul trucking vehicles as a model that could be compelling.

At the current price, JPMorgan sees the shares fully valued, so the firm would be looking more positively on this is one after large pullbacks. The firm also sees an immense market opportunity in an industry that has a total of $600 billion all-in from the 7 million or so trucks that are in service.

While JPMorgan is Neutral here, just a week earlier Cowen started Nikola with an Outperform rating and a $79 price target. This was the first official analyst call from the sell-side.

The Cowen report called Nikola an intriguing investment opportunity and showed that it is leveraging one truck platform, two powertrain options and three business segments. There is even an optionality in powersports, pickups and all-terrain vehicles.

The truck platform is for a heavy-duty vehicle and the power trains are batteries and hydrogen fuel cells. These business segments are in battery-powered short-haul heavy-duty trucks, fuel-cell-powered long-haul heavy-duty trucks and hydrogen fueling stations. Nikola also is planning on a light truck and other battery-powered vehicles, some of which are planned to be built by Nikola’s manufacturing partners.

The one theme here is the rise of the electric vehicle (EV). The recession and the lower oil prices have put a dent in expectations for 2020 sales, but the investing community and the car companies themselves are moving more toward the EV theme.

Nikola shares traded down only about 10 cents a share to $65.80 Monday morning, but its shares briefly traded above $90 during the post-SPAC hype. Yahoo shows a $23.8 billion market cap for this speculative stock. Its trading range in the last week has by and large been between $63 and $68.