Nikola (NKLA) stock analysis: dark chapter closes, shorting is risky

Nikola (NASDAQ: NKLA) stock price crashed by more than 9% after a judge sentenced Trevor Milton to four years in jail. The sentence closed a dark chapter in Nikola’s history as the management attempts to turn around the company. Its stock has plunged by more than 99% from its highest level on record, giving it a market cap of over $949 million.

Nikola Corporation closed a difficult chapter on Monday after a judge sentenced Trevor Milton to four years in jail. Prosecutors had requested eleven years, comparing his crime to that of Elizabeth Holmes. 

The ruling completes the downfall of Milton, who established the company a few years ago. As he prepares to go to prison, there is a blurry vision about the future of Nikola as concerns about its operations continues. Its stock has lost billions in value in the past few years and its future is uncertain, as I warned here.

Nikola is facing several challenges. The biggest one is that there are concerns about the future of hydrogen trucks because of their prohibitive costs. A hydrogen truck sells for about $450k, thrice what a typical diesel truck costs.

Nikola ended the last quarter with 277 non-binding orders from 35 customers, most of them in California. It is too early to predict how this orderbook will continue growing as the state bans diesel trucks in California ports.

Even with subsidies, the cost of buying a hydrogen truck will still be higher. As a result, this being an untested technology, there is a likelihood that the company will struggle to attract buyers.

Nikola Motors has also become a dilution machine that has seen its outstanding shares soar in the past few months. Data by TradingView shows that its outstanding shares have jumped from 29 million in 2020 to over 992 million. 

There is a high possibility that Nikola will raise more capital in 2024. It ended last quarter with $362 million in cash. It also had access to over $705 million. While these are good numbers, the company is still burning millions of dollars every quarter. In the most recent quarter, its net loss stood at over $425 million.

Nikola will continue making losses for a while when it starts delivering its trucks. We have already seen companies like Rivian and Lucid that started delivering vehicles continue losing a lot of money.

NKLA chart by TradingView 

I have written about Nikola several times and warned investors to stay away from the company. I still believe that the shares could continue falling in the coming months as the company starts to ramp up vehicle production and as losses mount.

Therefore, from a fundamental perspective, there is a likelihood that the company will continue struggling in the coming months. However, two potential catalysts could push the stock sharply higher in 2023.

The Federal Reserve is considering lowering interest rates in 2024 now that inflation is falling. If this happens, it could see investors move to beaten-down stocks like Nikola. Most importantly, the company could go through a short squeeze since it still has a short interest of almost 20%. This means that shorting the stock at these levels could lead to substantial losses,

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