Nikola Corporation (NASDAQ:NKLA) announced its Q2 results last Friday. Investors were pleased with the results, sending the stock up 8%. My repeated strong sell calls at the peak of its hype in 2020 have been my most prolific articles on Seeking Alpha. After four years and an essential wipe out of greater than 99% of those investors at that time, I believe that the company is still nowhere near investible. Investors should take any temporary increase in price as an opportunity to get out of the stock in a slightly better position than the previous day. I see no path forward that doesn’t result in substantial losses for shareholders.
Q2 was a valiant effort, but not nearly enough to move the needle
NKLA was up for good reason, as headlines of earnings beats and record revenue on the delivery of 72 hydrogen-powered vehicles made for a feel good turnaround story. However, when reviewing the company’s Q2 financials in greater detail, reality sets in:
Revenue may have more than doubled for the quarter from $15 million to $31 million, but so did the gross loss from $28 million to $55 million. Gross margin percentage barely moved in the right direction as it went from -180% in Q2 2023 to -175% in Q2 2024. With record deliveries and record revenues comes greater gross margin losses. The company is nowhere near the volume it needs to be before unit economics even at the gross profit level starts to make sense. At this stage of its growth, it’s just going to lose more money faster as the $351,000 average sticker price for its truck is barely half of what it costs to make.
The company has made progress in reducing its R&D and SG&A costs, but this still resulted in a $131 million operating loss for the quarter. While this is an improvement from the $169 million loss achieved in Q2 2023, it’s the equivalent of plugging one hole in a leaky boat when four more exist.
Dilution has wiped out legacy shareholders, and it looks like it’ll do the same to current ones
Tesla, Inc. (TSLA) once had losses far greater than this, and one could bring forth a fair argument that it is totally reasonable to expect a disruptive EV company like Tesla or Nikola to lose big money in the early stages. That’s all well and good, but Tesla always had at least $3 billion in cash on its balance sheet at any given time. It was also at the peak loss part of its growth stage back in 2017 when borrowing money was still cheap.
Nikola had only $256 million in cash on its balance sheet as of June 30th. Based on its current burn rate, it has maybe two more quarters worth of funds before it either raises cash or goes insolvent. In the going concern section of its Q2 filing, it made it clear that the company does not have enough funds to continue as a going concern for the next 12 months without raising more funds. It intends to use the equity distribution agreement it has with Citi, which was recently increased to an aggregate of $600 million.
While having already diluted its shares by over 300% from 12 million to 50 million since listing, NKLA needs to finance once again with no hopes of significantly improving the financials in the near term. Its annual burn rate is comparable to its market cap, which means it will have to dilute 100% every year at this pace.
NKLA’s fuel cell trucks remain a fun science project with limited ability to profitably scale. Investors are currently funding that science project, much like how the government might fund the military or NASA. However, when the government invests into these initiatives, there is reasonable expectation of an eventual return years down the road in the form of advanced technology or a proud achievement. By the time (or if) a FCEV truck business becomes financially viable, NKLA shareholders will either be completely wiped out or diluted to the point that they are essentially wiped out. Much like how buy and holders back in 2020 feel today. For investors who are adamant in holding stock in this company, thank you for funding the R&D required for the benefit of future generations. However, it’s very unlikely that your investment will pan out.
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