With General Motors (GM) no longer taking an equity stake in electric truck startup Nikola (NKLA), the company may have to move up its timeline to raise capital so it could ramp up production and deliver semi-trucks to customers.
Nikola said on Monday it revised the terms of a prior deal with GM, and that the auto giant won’t be taking a stake in Nikola. The two companies will not work together to produce Nikola’s pickup truck, the Badger. Under the revised terms of the new non-binding agreement, GM will supply its Hydrotec fuel-cell system for Nikola’s commercial semi-trucks.
Nikola’s shares plunged 26% on the session. Shares fell another 6% in pre-market trading on Tuesday as investors reassessed the company’s near-term prospects.
Dan Ives of Wedbush Securities told clients in a note the news “will be viewed as a clear negative.”
“This went from a game changer deal for Nikola to a good supply partnership but nothing to write home about and the Street will be disappointed accordingly along with lingering lockup worries,” Ives wrote.
Ives reiterated his Underperform rating and $15 price target on Nikola’s stock.
Investor attention now turns to new Nikola CEO and veteran manufacturing executive Mark Russell, who will have to likely move faster than he would have liked to raise fresh capital.
“We have said in our investor materials for some time — most of the year actually — we would do one more capital raise that would involve an equity raise. And that would be sometime in the next 12 to 18 months. We would do that opportunistically based on market conditions. So standby on that. That’s going to be our plan. We will plan to go back to the market for one more tranche of equity and we will do that when the conditions are best for that,” Russell told Yahoo Finance Live in early November prior to the GM deal revision.
While Nikola ended the third quarter with $907 million in cash, it could be burned through quickly given the company’s losses ($235 million operating loss through the third quarter) and infrastructure build out plans. In August, Nikola broke ground on a 1 million-square-foot, $600 million manufacturing plant in Arizona. The plant is the linchpin in Nikola beginning to address a backlog of semi-truck orders reportedly north of 14,000. Finishing the plant and building giant electric trucks from it will require a great deal of cash.
Further capital will likely be needed to support the rollout of semi-truck charging stations because as of now, Nikola hasn’t secured a partner for them.
“We believe a capital raise is in the cards as with GM scaling down its partnership we see Nikola needing to tap the capital markets to strengthen its cash position. The company has major ambitions which require significant resources and partnerships over the coming years to accomplish its hydrogen fuel cell goals,” Ives told Yahoo Finance via email.
Given Nikola has never produced a truck, has never turned a profit and has endured a trying few months of headlines (from the exit of founder Trevor Milton to an SEC inquiry) any capital injection could be on very unfriendly terms for shareholders.
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