Company / Analytics

Analytics, 16 September 2020

Nikola stocks: following the fraud allegations

Nikola stock has come under more fire from short-seller Hindenburg Research, whose claims have triggered a Securities and Exchange Commission investigation on Nikola. Nikola stock closed down 8.3% at $32.83 after regular trading on Tuesday after reports that the SEC opened an investigation into issues raised in the report. What are analysts saying? Should you buy or sell Nikola stock right now?

Background

On Tuesday, Hindenburg Research said Nikola basically admits that the Nikola One shown in a January 2018 video “was not powered on its own” and thus a “tacit admission of securities fraud.”

Last week, Hindenburg published a report, titled “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America,” accusing the company of fraud and lies.

Nikola responded Monday by calling Hindenburg’s report false and defamatory. But Nikola stock fell sharply late Monday after Bloomberg reported the SEC will probe the startup over the fraud claims.

Nikola recently signed a partnership with General Motors (GM) where GM will take an 11% stake in the electric truck maker.

On Monday, General Motors CEO Mary Barra defended her company’s new $2 billion stakes in Nikola at an investor conference. According to Mary Barra, GM had done due diligence on the deal and it “validates our technology, it allows us to have more people using the technology, which gives us the advantage of scale and which will help us drive costs down.”

How did Nikola stocks move?

Shares lost 8.3% to 32.83 on the stock market on Tuesday after rebounding 11% Monday. Nikola stock dived 9.6% last week amid the short-seller report. Nikola’s competitor, Tesla stock added 7.2% to Monday’s 13% jump and closed trading Tuesday at $449.76. GM stock rose 1.3% and closed trading at $31.58.

While Nikola’s stock has declined more than 40%, GM’s shares have lost about 10% of its value since the report came out.

What analysts are saying?

In a note Monday, Wedbush analyst Dan Ives called Nikola a “massive” opportunity if the company successfully executes. He kept a neutral rating on Nikola stock, assigning a 45 price target.

“While we look forward to management addressing some of these issues, we continue to believe seeing the forest through the trees that Nikola is a story stock now and it’s all about execution looking ahead through 2023,” he wrote.

In the deal, GM will be the manufacturing partner for Nikola’s electric pickup truck - the Badger. The partnership will see the Badger use GM’s widely acclaimed Ultium battery systems and Hydrotec fuel cell technology. Nikola will exchange $2 billion in newly issued common stock for the in-kind services and access to General Motors’ global safety-tested and validated parts and components.

General Motors will be subject to a staged lock-up provision beginning in one year and ending in June 2025. General Motors will engineer, homologate, validate and manufacture the Nikola Badger battery electric and fuel cell versions. Nikola management said it expects to reduce battery and powertrain costs by $4 billion, and engineering costs by $1 billion, over the next decade.

The move gives GM a bigger stake in the emerging market for electric pickups. GM will provide electric batteries and fuel cells for Nikola’s trucks, including the upcoming Badger, which GM will manufacture. GM will receive $2 billion in stock and a seat on Nikola’s board.

Nikola made its debut on the stock market on June 4 after it merged with special purpose vehicle company VectoIQ Acquisition Corp, a publicly-traded special purpose acquisition company headed by former vice chairman of General Motors Stephen Girsky.

Nikola’s quick leap on the NASDAQ made it a favorite for retail investors, traders, and fans, though the company is yet to generate any revenue. Nikola expects to start generating revenue by 2021.

Buy, hold or sell Nikola

According to CNN Business, 5 analysts offering 12-month price forecasts for Nikola Corporation have a median target of 49.00, with a high estimate of 79.00 and a low estimate of 45.00. The median estimate represents a +49.16% increase from the last price of 32.85.

The current consensus among 5 polled investment analysts is to Hold stock in Nikola Corporation. This rating has held steady since August when it was downgraded from a Buy rating.


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