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Stepan Lavrouk
Stepan Lavrouk
Articles (605) 

Nikola Faces Harsh Criticism From Shortsellers

The electric automaker responds to a recent shortseller report

The future is very difficult to forecast, but one trend that seems very likely to continue is the expansion of the electric car market. The biggest auto manufacturers in the world have recognized this too, with industry giants like Ford (NYSE:F), General Motors (NYSE:GM) and Volkswagen (XTER:VOW3) all investing huge amounts of money into the space. Ford even recently announced an electric version of its best-selling F-150 pickup truck - perhaps the least likely candidate for an electric makeover.

Suffice to say, there are strong desires in the industry to "electrify" every type of vehicle imaginable. One notable example of this is the semi truck. Elon Musk's Tesla (NASDAQ:TSLA) announced its Tesla Semi last year (although there has been no news since the model was unveiled). More recently, Nikola (NASDAQ:NKLA) has burst onto the scene, attracting huge amounts of shareholder capital with its prototype semi trucks. However, the upstart automaker was recently accused of fraud by shortselling firm Hindenburg. Here's what investors should take away from this.

Many questions to answer

The thrust of Hindenburg's accusations are that Nikola does not actually possess the proprietary battery and hydrogen fuel cell technology that it claims it does, and that the demonstrations of its Nikola One semi truck have been elaborate stage productions designed to deceive investors. In particular, Hindenburg has claimed that videos in which the Nikola One appeared to be driving under its own power are misleading, as the truck was simply towed to the top of a hill and allowed to roll down the incline. Shares of Nikola fell more than 20% at the end of last week as a result of the report.

Nikola admitted that the Nikola One had been filmed rolling down a hill, but denied that it had ever claimed that it had been powering itself. Hindenburg immediately pointed out that the Nikola One had been marketed as a "1000 horsepower" vehicle, as well as a "fully functional truck." The stock fell further on Tuesday when the U.S. Securities and Exchange Commission disclosed it had opened an investigation into the company.

It remains to be seen whether the SEC will find any evidence of wrongdoing by the business. However, from a pure value investing perspective, I would say that betting on Nikola stock does not seem like a good choice in terms of risk-reward. Nikola currently boasts a market capitalization of $12.55 billion, even after the recent stock price declines. At its height, the company had a market cap of $26 billion, despite not booking a single dollar in revenue. For comparison, Ford currently trades at a market cap of $27.6 billion and booked $156 billion in revenue in 2019. Investing is ultimately a numbers game, and right now, the numbers don't look too attractive for Nikola.

Disclosure: The author owns no stocks mentioned.

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About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

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