This Stock Deserves a -100/10

We get it…everyone loves a good comeback story.

It’s hard to ignore Nikola Motors (NKLA) when the search volume amongst financial pros and retail investors skyrockets…

…not to mention it’s more than doubled several times in the last few months.

Folks – don’t get caught holding the bag on this one.

Nikola Motors and every other ‘fuel cell’ hydrogen play is destined for failure.

Let us explain why.

Nikola Motors Business

You may recall Nikola Motors from the new when ex-CEO Trevor Milton was convicted of fraud.

Under his watch, the company issued fake videos that showed cars working when in fact, they were rolling down a hill.

New management is in, but it doesn’t change the main problem – hydrogen power is a terrible technology.

The short scientific explanation of how it works is as follows:

• Hydrogen is the fuel (very clean) burned by cars to run.
• To make hydrogen, you force electricity through water to separate hydrogen and oxygen.
• Typically, the process is 70%-80% efficient.

Short version – you put more electricity in than you get out to make a ‘hydrogen’ battery.

Lithium-ion batteries are close to 100% efficient.

Electrolysis hasn’t changed since it was invented in 1785.

It’s inefficient, unsustainable, and far more expensive than nearly every other mechanism to store power.

Financials

Source: Stock Analysis

Nikola just started to produce vehicles – a whopping 33 trucks in Q2 of 2023, down from 63 in Q1.

The company burns through $150 million a quarter in cash or $3.39 million per vehicle it produces.

That’s pathetic.

There is only $243.8 million on the balance sheet against $370 million in total debt.

Management keeps issuing shares, which nearly doubled since since the end of 2021.

Make no mistake, they’ll need to keep raising cash for years to come.

Valuation

Source: Seeking Alpha

Traditional car companies like Ford (F) and General Motors (GM) turn a profit, even with the UAW strikes.

NIO (NIO) doesn’t turn a profit, but it has generated cash from operations in 2020 and 2021.

Nikola has never come close to these marks.

At the moment, it trades at a lofty 13.4x sales, well above even Tesla (TSLA).

No measure points to Nikola as a value stock.

Growth

Source: Seeking Alpha

Nikola does exhibit incredible revenue growth. But that’s what you’d expect when you’re starting point is zero.

Actually, we’d expect them to be well over 1,000% growth.

The fact they haven’t managed to manufacture more than 100 cars this year says it all.

Profitability

Source: Seeking Alpha

Let’s not even pretend that Nikola turns a profit.

Yes, NIO doesn’t either. But it’s not in the same financial position as Nikola.

Our Opinion 0/10

If negative ratings were possible, Nikola would get all we have to give and then some.

The company combines the worst features possible: a fraudulent ex-CEO, anemic production, and a product that is a surefire loser.

Are we being a bit harsh?

No.

Mark our words – this company will end up as a Harvard Business Case Study some day. And not because they did anything right.