Company / Analytics

Analytics, 11 June 2020

Tesla and Nikola are taking the market by storm

Yes, that’s right. Tesla and Nikola. Two car companies, both named after the celebrated Serbian-American inventor, Nikola Tesla. Both companies are re-imagining the auto market, replacing gasoline and diesel-powered cars and trucks with zero-emission technologies. This week, their stocks surged – albeit for different reasons.

On Monday, Tesla shares hit an all-time high closing price of USD 949.92 on news of record-high sales of its China-made Model 3 sales. Tesla’s Model 3 sales in China jumped in May for the first time since June 2019, and Tesla’s were the top-selling new energy vehicles with more than 11,000 units sold during the month, the China Passenger Car Association said Monday. Tesla has gained 121% year-to-date.

Nikola Share Price Doubles Just Two Days After Market listing

On the other hand, shares of its competitor Nikola more than doubled since their Friday closing price, hitting USD 73.27 per share after soaring 104%, just three days after the company listed on the NASDAQ. The surge followed a tweet by Nikola’s founder and executive chairman Trevor Milton that Nikola would open up reservations for the Badger on June 29. The Badger is expected to trade at a retail price of between USD 60,000 and USD 90,000, depending on the configuration, according to the company.

Founded in 2015, Nikola is named after the same man that Tesla used for its name. The company 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 business model is different, and it’s not rivalling Tesla in the passenger car manufacturing business. Nikola is aiming to build battery-electric and hydrogen-electric trucks and pickups. Its long game is in zero-emission heavy-duty transportation and related infrastructure such as hydrogen station networks.

But its new electric pickup truck, Badger, could become a competition of Tesla’s Cybertruck. The Badger will have an estimated range of up to 600 miles, 100 miles more than the estimated maximum range of Tesla’s Cybertruck.

Nikola and its founder are betting big that policymakers will support zero-emission technology in road transportation and that investors will see the Environmental, Social, and Governance (ESG) credentials of the company.

Nikola a favourite with no revenue yet

Nikola’s quick leap on the NASDAQ has made it a favourite for retail investors, traders, and fans. Nikola’s market capitalization eclipsed USD 30 billion in intraday trading Tuesday, higher than Ford’s value of about USD 28.8 billion and Fiat Chrysler Automobiles NV of about USD 20.5 billion. Nikola expects to start generating revenue by 2021 with the rollout of its Nikola Tre Class 8 BEV, followed by the Nikola Two Class 8 FCEV coming in 2023. According to founder Milton, the company will make five times the revenue per truck sold compared to other companies by vertically integrating the supply chain, just like Amazon.

For Nikola, surpassing the market capitalization of each of Ford and Fiat Chrysler Automobiles is not bad for a company that has yet to make any revenue.

Unlike Tesla, Nikola is not building the technology behind its vehicles in-house. Instead, it has chosen to share the intellectual property on its R&D with technology and engineering companies with deep pockets that can make Nikola’s ideas work.

Tesla still on the lead

Nevertheless, Tesla is still on the lead, not only due to its fast-mover advantages, but given its unique business model – cutting across energy, auto industry, electric batteries, residential solar, and autonomous mobility - which is completely different from all its competitors.

Tesla’s total vehicle sales are growing rapidly, mainly due to soaring Model 3 deliveries. Trailing-12-month Model 3 shipments for the period ended March 31 increased about 70% year over year. While the vehicle’s year-over-year growth will likely stall in Q2 due to a manufacturing pause during the quarter because of COVID-19, Tesla may be realizing cost-savings benefits that come from improved economies of scale toward the end of the period now that manufacturing has resumed.

Tesla’s market capitalization as of Monday 8 June was about USD 176 billion, almost double that of General Motors, Ford and Fiat Chrysler combined.

Can Nikola Avoid Tesla’s Growing Pains?

The trend in the stock price of Nikola – just three days into trading on the market – is impossible to predict, but so far, it shows the company may have already built a devoted group of followers and believers, just like Tesla has done.

Going forward, Nikola will have to start generating revenues, preferably sooner rather than later, in order to convince the still sizable camp of sceptics that zero-emission heavy-duty vehicles could give fossil fuel-powered vehicles a run for their money over the next decade.

But by pushing Nikola’s market cap to USD 26 billion at Monday’s close, investors have taken appraisals of zero-emission vehicle manufacturers named after a celebrated Serbian-American inventor to another stratosphere. Delivering on targets and smooth production ramp-up could also spare Nikola some of the growing pains that Tesla had two years ago. Nikola has said it has over USD 10 billion in preorders from commercial clients including brewer Anheuser-Busch InBev SA.

Traditional automakers have struggled to attract the same attention from investors, despite big spending in battery-powered technology.

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