Nikola (NASDAQ: NKLA) continues to raise questions from investors who want to understand the rationale for its valuation. Unlike its main rival, Tesla (NASDAQ: TSLA) which is focused on private transportation, Nikola is focused on commercial enterprises, providing heavy-duty freight/semi-trucks which run on hydrogen-powered batteries. These batteries are seen as a promising alternative to gas-powered vehicles because it is a cleaner source of energy and has been rumoured to a higher storage capacity than electric cars.
The initial scepticism which trailed the stock seemed to have faded when auto giant General Motors (NYSE: GM) took a $2bn stake in electric start-up and trash collection firm Republic Services contracted it to supply 2,500 electric garbage trucks.
Despite an equity return of 155.4% since going public on June 4, the stock’s bull rally seems to be losing steam. The stock has been down -42.21% in the last three months. Investors are worried that the stock may have overvalued having benefitted from the growing hype for electric vehicles.
Nikola is also currently embroiled in a scandal which emanated from the Hindenburg Research Report Nikola published on September 10, 2020. The report alleges that the efficiency of the Nikola’s hydrogen-powered batteries is "an intricate fraud built on dozens of lies." Hindenburg Research says it has extensive evidence that the company’s founder Trevor Milton, hyped its battery and fuel cell technology beyond its actual capabilities and exaggerated the progress made towards the development of the electric truck. The Schall Law Firm has commenced investigation claims of fraud on behalf of investors.
This has shed a dark cloud over Nikola which seemed to have taken a breather from industry critics following the $2 billion deal with auto giant General Motors (NYSE: GM). As such, investors have to be cautiously optimistic when investing in Nikola. No doubt the stock holds a lot of promise, especially as it has been able to quickly identify and create a niche for itself in a fast-evolving EV market. However, a more reasonable approach would be to wait for the outcome of the report or hold for a short swing.