TommyBoyTrader

[sharky]

Nikola: Oversold And Undervalued

https://seekingalpha.com/article/4493291-nikola-ev-stock-oversold-undervalued

Mar. 07, 2022 1:39 AM ETNikola Corporation (NKLA)12 Comments4 Likes
Summary
Shares of Nikola went through an undeservedly large drop in pricing in recent months.
The EV manufacturer reported slightly better than expected fourth-quarter earnings.
Signings of new letters of intent could power shares higher in 2022. So could demonstrated progress regarding Nikola Tre BEV production.


EV truck manufacturer Nikola (NKLA) is making inroads in the truck segment and has started to make first deliveries at the end of last year. The electric vehicle company should be able to ramp up Nikola Tre BEV deliveries in 2022 and it could sign new letters of intent with trucking companies. Because shares of Nikola went through a large drop in pricing in recent months, I believe the stock is now undervalued and could rebound in FY 2022 as the company reports accelerating customer adoption of its EV truck solutions!

Nikola’s fourth-quarter earnings card
Electric vehicle truck manufacturer Nikola submitted its earnings card for the fourth-quarter about two weeks ago and the startup managed to report slightly better results than expected.

Seeking Alpha Nikola Q4
Seeking Alpha

Nikola is still very much at the beginning of its production and delivery ramp. The firm started to make its first deliveries at the end of last year. The first Nikola Tre BEV trucks were delivered to Total Transportation Services, Inc. in December and trucking companies are currently integrating Nikola trucks into their transportation fleets and testing the product.

Nikola did not record any revenues for the last quarter or the last year, but this is going to change this year as the startup eyes to produce and deliver up to 500 heavy-duty trucks in FY 2022. While the firm did not (yet) see any revenues, Nikola did incur larger losses compared to the previous year. Operating losses for the full year were $693.5M, showing a 1.8 X factor increase over the same period a year earlier. Higher operating costs resulted from higher research and development expenses as well as higher SG&A expenses related to Nikola's pre-production ramp. In the short-term, operating costs are likely going to increase as Nikola gets ready to roll a larger number of heavy-duty trucks off of factory belts.

2022 could be a year of change for Nikola
Nikola is just about to turn the corner. The EV truck company had its fair share -- and possibly way more than its fair share -- of negative attention lately, but with production and deliveries for the BEV and FCEV truck models ramping up this year, shares of Nikola potentially face some exciting catalysts that could also power shares higher.

Nikola projects that 300-500 Nikola Tre BEVs will be produced and delivered to customers in FY 2022 while fuel-cell powered heavy-duty trucks are going through pilot testing with some of Nikola’s customers. While Nikola’s FCEV model is getting validated right now, the EV truck startup is looking at a serious production ramp after FY 2022... something that may not be fully understood or priced into shares of Nikola at the moment.

While Nikola's production volume is set to be between 300-500 Tre BEVs in FY 2022, I believe FY 2023 will see a much larger production volume exceeding 1,000 units of BEVs and FCEVs combined. By FY 2025 or FY 2026, I expect Nikola to manufacture up to 12 thousand battery and fuel-cell powered heavy-duty trucks annually, implying a total sales value of at least $3.0B. In the next two years alone, combined sales could exceed $1.0B. If Nikola can sign additional letters of intent with other trucking companies, the actual sales volume could be much higher.

Nikola's growth prospects in the heavy-duty truck segment are valued at a market-capitalization-to-sales ratio of 5 X. This is about half the sales multiplier factor Nikola had just two months ago...

Risks with Nikola
Nikola is on probation after the company and its founder overpromised on technological capabilities. However, if Nikola can avoid negative headlines, sign new letters of intent for the delivery of more BEVs and FCEVs with transportation firms and executes on its production plan, shares could revalue a lot higher. In 2022 and 2023, Nikola's production and delivery volume should increase considerably, potentially supplying catalysts for shares of Nikola to power higher. The biggest risk for Nikola, as I see it, is that customers who signed letters of intent for the integration of Nikola’s BEV trucks into their delivery fleets, opt to end the pilot and don't follow through with additional BEV and FCEV purchases. This would likely be a very negative event for Nikola and the stock.


Final thoughts
I continue to expect Nikola to sign more letters of intent with transportation firms in 2022, especially if the firm concludes current pilots successfully. The LOIs that have been signed so far indicate that the market has appetite for zero-emission heavy-duty trucks. Nikola still recorded no revenues in FY 2021 and losses expanded in FY 2021 as the EV startup moved into the production stage. In the short term, Nikola will continue to create big losses, but the stock is set to react positively to new contract signings and new deliveries!

$NKLA $EV