Alternative energy truck company Nikola’s founder Trevor Milton was found guilty of fraud over statements he made about the firm’s prospects. At the core of the changes was that he tried to increase the price of the public corporation’s stock. The news shouldn’t be a distraction for investors. Nikola has become a penny stock, and its chances to recover are low.
Nikola’s stock trades for $3 (a penny stock is defined as one that trades below $5). It traded for over $37, slightly less than two years ago. Today’s prices remain high, based on the company’s prospects. It translates to a market capitalization of $1.32 billion.
Nikola has lost over $100 million for six consecutive quarters in a row. In the most recently reported quarter, the figure was $172 million. The key comment Nikola made in the 10-Q for the quarter was, “While we intend to raise additional capital in the future, if adequate funds are not available, we will need to curb our expansion plans or limit our research and development activities, which would have a material adverse impact on our business prospects and results of operations.”
Nikola is widely viewed as without enough capital to compete in the alternative energy large truck market. Although not all global truck manufacturers compete with it directly, those that do have stronger balance sheets.
Another challenge for Nikola is that it has already posted an embarrassing recall. Its 93 battery-electric Nikola Tre Class 8 trucks were recalled for seat belt problems. It is hard to see how something so critical could be overlooked on so few vehicles.
The global alternative energy vehicle market has been separated into three categories. The first is huge legacy manufacturers who have access to capital but fossil fuel brands and infrastructure. They need to go through substantial evolutions to compete in the new market. The second only has one company–Tesla. Tesla has reached critical mass in sales, and it, by market cap yardsticks, is the most valuable auto company in the world.
Finally, there are a few companies like Nikola. It has neither the capital, brand, nor infrastructure to compete.
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