Shares of Nikola Corporation closed down 27.8% on Thursday after reports indicated the electric truck manufacturer is considering selling parts or the entirety of its business. The stock closed at 85 cents per share, having reached a new 52-week low of 76 cents earlier in the trading session.
Nikola’s shares plummet 27.8% amid bankruptcy fears
Bloomberg News reported on the potential sale and mentioned that Nikola is also exploring options to bring on partners and raise new funds. This news follows Nikol’s warning to investors in its third-quarter conference call that it had sufficient cash to support operations only through the first quarter of 2025, ending the third quarter with $198 million in cash.
Nikola CEO Steve Girsky stated during the earnings call that the company is “actively talking to lots of potential different partners who value what we do and value what we’ve built.”
In the afternoon session, Nikola’s shares plunged 21.4% amid rumors regarding Girsky’s possible departure, raising fears about bankruptcy. Fred Lambert, editor-in-chief of Electrek, indicated on X (formerly Twitter) that a bankruptcy filing is “in the hands of lawyers.” Nikola has not commented on these rumors.
Nikola’s stock has displayed extreme volatility, experiencing 88 price moves greater than 5% over the last year. The company’s share price has decreased 34.5% year-to-date and is currently trading 97.3% below its 52-week high of $31.20 reached in March 2024. An investment of $1,000 in Nikola shares five years ago would now be valued at approximately $2.72.
Girsky, a former bank analyst and General Motors executive, took the company public via a special purpose acquisition company (SPAC) in June 2020, which encouraged other electric vehicle firms to pursue similar public listings.
Following the report of potential bankruptcy, Nikola stock was observed trading down by 16.2%, reaching $0.98 at the last check on Thursday. The company has reportedly lost over 94% of its value over the past year.
Further developments detailed by Lambert include increasing staff layoffs and prolonged silence from the company regarding production and delivery figures. A flyover of Nikola’s factory showed more than a hundred trucks standing idle without batteries.
Nikola’s challenges began in 2020 when short-seller Hindenburg Research accused the company of fraud. Hindenburg described Nikola as an “intricate fraud,” notably criticizing a promotional video showing the “Nikola One in Motion,” which was alleged to have been staged. In December 2023, former CEO Trevor Milton was convicted of fraud after the jury determined he provided false information about the company.
Following his conviction, Milton claimed in April 2024 that Nikola’s board is compromised and must dismiss Girsky and others to prevent bankruptcy. He also filed a multi-billion dollar derivative lawsuit in June against the company’s legal officer and directors, describing misconduct and malpractice.
In October, Nikola reported third-quarter revenue of $25.18 million, falling short of analyst projections that estimated $37.23 million, and reported an adjusted loss of $2.75 per share, compared to the anticipated loss of $2.35 per share.
What to do?
- If you’re holding shares: Consider whether the risk aligns with your investment strategy. The potential for bankruptcy could render shares worthless. Be cautious and weigh the likelihood of recovery versus complete loss.
- If you’re considering buying: Even at a low price, the risks are immense. Buying now would essentially be a speculative bet, not an investment. Proceed only if you are willing to lose the full amount.
Look for signs of fraud or mismanagement. The company’s history of accusations, convictions, and legal disputes raises red flags. Ensure you thoroughly vet other investments for similar issues to avoid falling into another speculative bubble.
Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.
Featured image credit: Nikola Corp.
