Stock Market Comment: Is Nikola the new Tesla?

• Nikola Corporation (NKLA.US) trades over 100% higher month-to-date

• Company focuses on zero-emission trucks

• Production of hydrogen cells vehicles expected in 2023

• Analysts endorsed the company in spite of no revenue

Nikola Corporation (NKLA.US) has been one of the hottest US stocks recently. Stock trades over 100% month-to-date. Up to recently, it has been a relatively unknown car manufacturer. Company shares some similarities with investors' favourite Tesla (TSLA.US) as it also aims to manufacture zero-emission vehicles. However, Nikola looks to be more focused on heavy-duty trucks and neither of the big-name carmakers has a clear lead in this field.

Overview

Nikola, just like Tesla, produces battery-electric vehicles at the moment. However, the company is researching ways to start producing cars fuelled with hydrogen cells. While hydrogen cells are not used extensively at the moment, they are likely to gain popularity as it is said they are capable of supporting longer-haul trips without the need of recharging. Reason behind recent abnormal share price gains is the same as it was for other hot companies like Tesla, Zoom or Netflix - investors simply think they are companies of the future. Shift towards zero-emission cars is accelerating and there is no question about it. However, the truth is that, right now, investors in Nikola are buying promises.

Operations

Size of Nikola's operations is dwarfed by those of conventional car makers like Daimler or Volkswagen, or EV car makers like Tesla. Company operates a single production plant in Germany and plans to commence operations at a factory in the United States this summer. Trucks will be produced in Europe at the beginning and exported to the US. Production of long-haul heavy trucks fuelled with hydrogen cells - niche in the current market - is scheduled to start in 2023. However, it could gain an edge only if it manages to develop a fully-operational truck ahead of US and European peers. Should it fail to develop such a truck ahead of other car makers, it may not regain its hype due to much smaller production capabilities.

Nikola (NKLA.US) rallied in June, reaching an all-time high of $86.85 on June 6. Pullback started later on and share price broke below the Overbalance structure, making the biggest correction in the current upward impulse. However, as one can see, stock is reacting to Fibonacci retracement levels. Source: xStation5

Exaggerated claims

Part of massive share price gains was trimmed following a report from Bloomberg News. Bloomberg claims that Nikola's CEO, Trevor Milton, exaggerated capabilities of Nikola One truck, when its prototype was unveiled in 2016. CEO claimed that the truck was fully operational at the time while sources Bloomberg spoke to claim that it lacked fuel cells as well as other crucial parts. During the same event, Milton said that deliveries will begin in 2020 but recently Nikola Corporation said that it actually expects no revenue to be made this year and that production of Nikola One truck will begin in 2021.

Endorsment from analysts

However, Nikola has already booked orders for 2 and a half years of production. This is quite an achievement given that the company did not see a single dollar of revenue since its inception in 2014. Strong order backlog confirms that Nikola has a solid marketing department and in case it manages to scale up production, it could be a successful and well positioned company. Analysts seem to be optimistic - Cowen initiated coverage of the stock with a "buy" rating yesterday and set a price target of $79.

Looking at Nikola at a lower frame (H1), one can see that the stock has started a sluggish recovery. A test of the lower limit of market geometry at $61.35 was made near the end of a session yesterday but bulls managed to hold the share price above it. Limits of market geometry are levels to watch in the near-term - $61.35 (support) and $71.80 (resistance). Source: xStation5