Nikola Shares (NASDAQ: NKLA) fell back into a downtrend after a brief spike near $12 in late April, but the excitement has since faded due to a broader market selloff driven by macro growth headwinds. Nikola remains a potentially worthwhile EV investment in the heavy-duty segment, however, and I believe the company’s ambitious targets for 2022 will bring the company closer to introducing a viable product for the heavy-haul market!
Revenue better than expected
Nikola’s revenue map for the first quarter of 2022 showed that the company is making progress in revenue generation. Nikola recorded revenue of $1.9 million in the first quarter of 2022 due to the sale of mobile charging trailers, which was much better than expected. Nikola’s first-quarter revenue forecast was just over $100,000.
Despite better-than-expected revenues, Nikola incurs higher operating costs as it moves into production. Operating expenses in the first quarter totaled $151.7 million, showing a year-over-year increase of 25.8%. Nikola’s operating loss also increased to $151.3 million from a loss of $120.6 million the previous year. Two-thirds of the increase in operating expenses was due to higher research and development expenses, with the other third related to higher SG&A expenses. Despite a higher operating loss, Nikola reported better-than-expected earnings per share. Nikola’s adjusted loss was $0.21 per share, beating the prediction of $0.04 per share.
While operating and per-share losses were expected, the really important part of Nikola’s balance sheet was the outlook. Several electric vehicle startups, including Lucid Group (LCID) and Rivian Automotive (RIVN), have lowered their production targets for fiscal year 2022 due to the ongoing supply constraints the industry as a whole is currently experiencing. Lucid updated its production outlook from 20,000 units to 12-14,000 units in February while Rivian lowered its production forecast from 50,000 EVs to 25,000 EVs.
Guidance reaffirmed for FY2022 and first dealer shipments
Nikola has secured enough components to support its delivery forecast of 300 to 500 Nikola Tre battery electric trucks this year. The company also said it will continue to build, validate and test its fuel cell electric trucks which are expected to be produced soon. Nikola plans to start production of six fuel cell electric vehicles by the end of the second quarter of 2022 and complete them by the end of the following quarter. Serial production of Nikola’s fuel cell electric trucks is expected to begin in the second half of 2023.
After the end of the first quarter, Nikola delivered eleven heavy trucks to dealers. The company also said it had secured purchase orders for 134 Nikola Tre battery electric vehicles with purchases eligible for incentives under the Zero Emissions and Hybrid Trucks and Buses Voucher Incentive Project. California. Together, Nikola’s purchase orders and letters of intent represent a potential order volume of 510 BEV Nikola Tre. Nikola also guided, on the earnings call, the production and delivery of 50-60 BEV Nikola TRE in Q2’22, which is expected to generate revenue of $15-18 million.
Balance sheet and liquidity
Nikola had $360.1 million in cash at the end of the first quarter, meaning the electric vehicle startup has spent $137.1 million in cash since the end of last year. To fund the production and delivery ramp in fiscal year 2022, Nikola raises $200 million from an institutional investor through senior convertible bonds due 2026. The bonds will bear an interest rate of 8% or 11%, with the final rate depending on how Nikola pays the interest. Payment in cash will incur an interest rate of 8%. An interest rate of 11% will apply if Nikola elects to issue additional Notes. The capital increase demonstrates that Nikola can find alternative funding sources to ensure a full ramp-up of the Nikola Tre BEV in fiscal year 2022.
Expect a significant sell-off ramp after fiscal 2023
Nikola should see a significant increase in sales and deliveries over the next five years. By fiscal year 2026, Nikola could have $4.4 billion in annual sales…which is an estimate that could be low if the business performs well. Sales should really take off in fiscal 2024. Based on expected revenues of $1.5 billion in fiscal 2024, Nikola’s PS ratio of 1.9X looks attractive.
Risks with Nikola
Nikola’s biggest business challenge is bringing a viable product to market that customers would like to buy. The successful pilot trials, which the startup is currently conducting, go a long way in assuring customers and investors that Nikola Tre battery-powered trucks are commercially viable alternatives to heavy duty trucks powered by fossil fuels.
Nikola will likely need to raise additional capital at the end of the year to fund production of Nikola FCEV in fiscal year 2023. Potential production delays and liquidity issues could weigh on Nikola’s valuation and the action in the future.
Nikola is on the right path and the actions have been punished enough. The EV startup saw a steep price drop in 2022, but that drop is likely unrelated to progress the company is making on its production ramp for the Nikola Tre BEV. Nikola will slowly ramp up production this year, but the company could see significantly higher production and delivery volume in fiscal 2023. Due to the challenges of ramping up production and the Nikola’s liquidity, shares of the electric truck startup are high risk. , high yield speculation only!