When it comes to Nikola (NASDAQ:NKLA), I think many investors and most of the Street have lost sight of a few important points. Most critically, they don’t realize that Nikola stock can soar even if the company does not, on its own, revolutionize fuel-cell and battery technology. Nevertheless, I believe that investors should wait for a better entry point before buying Nikola.
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As I’ve pointed out previously, there will be meaningful demand for fuel-cell trucks from many companies that want to show that they care about the environment in general and climate change in particular. Additionally, in certain places, like California and Europe, governments are likely to mandate the use of zero-emission trucks.
And it makes sense for battery-electric trucks to be used for relatively short-distance tasks in areas where many people live and/or work. In those situations, the trucks’ short range will not be an issue, while their lack of pollution will be an important asset.
There aren’t many companies making “green,” full-size trucks now. After performing extensive research on the sector, I’ve only heard of several such companies, including Toyota (NYSE:TM), Hyundai, Workhorse (NASDAQ:WKHS), and Lightning Systems which is partnering with Plug Power (NASDAQ:PLUG).
Given the relative lack of competition in the “green truck” space, Nikola can succeed — and Nikola stock can surge above its current levels — if its vehicles are well-designed, work well without giving their owners major difficulties, and use top-notch existing technologies.
The company’s plan to launch hundreds of hydrogen-fuel stations could, meanwhile, give it an important first-mover advantage over its competitors, since there are currently very few such stations in the U.S.
There are multiple indications that Nikola’s trucks will be well-designed, function properly, and incorporate leading technology.
A Closer Look at Nikola Stock
First of all, Nikola has received large orders from two huge companies: Anheuser-Busch (NYSE:BUD) and trash hauler Republic Services (NYSE:RSG). In 2018, the beer maker ordered “up to” 800 fuel-cell trucks from Nikola, while Republic Services in August ordered 2,500 battery-electric trucks from Nikola.
In November 2019, Anheuser-Busch announced that it had used one of Nikola’s tucks to make a delivery for the first time. I think it’s likely that the beer maker has utilized many of Nikola’s trucks since then and that we would’ve heard if the vehicles weren’t functioning well by now.
Further, I’d be willing to bet that both Anheuser-Busch and Republic Services used experts to evaluate Nikola’s technology, engineering concepts, and personnel and found that it was poised to develop reliable vehicles with strong functionality.
Nikola Is Likely to Have Leading Technology
On the technology front, Nikola has worked closely with Bosch, a top developer of truck components and technologies. Specifically, the two companies partnered to create a “fuel cell powertrain” for Nikola’s Nikola Two truck.
Moreover, the companies reported that “Nikola trucks feature Bosch innovations such as Mirror Cam systems, Perfectly Keyless and Servotwin steering system.”
Further, as is well-known, General Motors (NYSE:GM) recently announced a large-scale deal with Nikola. Under the agreement, GM will engineer and build Nikola’s Badger pickup truck. Two versions of the truck will be sold: one will use only a battery and the other will be powered by a fuel cell and batteries. And outside of Europe, GM will supply all of Nikola’s fuel cells.
GM’s electric car, the Bolt, has generally been the best-selling electric vehicle in the U.S. that’s made by a company whose name is not Tesla (NASDAQ:TSLA). I’ve been very pleased with my pre-owned Chevy Volt which I bought in October 2019. Given these points, I’m confident that GM will, using Nikola’s design, build an excellent pickup truck for the start-up and sell it high-functioning fuel cells.
Trouble With the CEO
Under its former chairman and CEO, Trevor Milton, Nikola specialized in half-truths/deception, exaggerations, and somewhat overambitious aspirations, but Milton is no longer with the company. Its CFO, Tom Brady, recently provided a measured evaluation of Nikola’s capabilities, indicating that Nikola intends to be more levelheaded and transparent going forward.
Additionally, one could easily argue that if Milton’s statements should disqualify Nikola, then Elon Musk’s statements should have doomed Tesla stock many years ago.
Remember Musk’s claims about Tesla’s autonomous vehicles and accusations of test fudging by the EPA. Of course, The Who could forget that the SEC famously accused Musk of lying.
Most recently, Musk failed to deliver on his million-mile battery tease and, much more egregiously, let the rumor that Tesla was about to unveil such a battery circulate for many weeks without denying it.
The Bottom Line on Nikola Stock
Given the high likelihood of strong demand for zero-emission, full-sized trucks, the lack of strong competition in the space, and Nikola’s impressive partnerships, Nikola could become quite successful.
If Elon Musk’s history is any indication, Milton’s misrepresentations and exaggerations should not be disqualifying for Nikola over the longer term.
But with the coronavirus pandemic poised to potentially worsen as the weather gets colder and restrictions on the sale of over 250 million shares of Nikola stock set to expire on Dec. 3, I would urge investors to wait until at least after a week or two after that date before pulling the trigger on the shares. I think investors who wait until at least the middle of December will probably get a better entry point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
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