Nikola: electric vehicle stocks keep rolling downhill

Rising interest rates and capital intensive companies do not make for good bedfellows.

Look at electric vehicle start-up Nikola. Once a Spac darling, the clean energy truckmaker’s market value has plummeted from a high of nearly $29bn three years ago to less than $700mn today.

Making false claims about its technology, including the infamous promotional video in which gravity — not batteries — kept a truck moving, wounded the company’s reputation. The collapse in its share price, along with the sharp rise in borrowing costs, has stymied lossmaking Nikola’s ability to raise the cash it needs to fund vehicle development and production.

This week it turned to investors to help shore up its strained balance sheet. It wants to raise $100mn through the sale of 90mn shares for $1.12 each. The price represents a 20 per cent discount to the stock’s closing price of $1.40, which was already a record low. That is painful dilution for existing shareholders.

The situation is urgent. Nikola had just $233mn in cash and cash equivalents at the end of last year, down from more than $840mn at the end of 2020. It made just $46mn in revenue last year and booked a net loss of $784mn.

It is not the only EV start-up in need of funds. Earlier this month, Rivian Automotive sold $1.3bn of convertible bonds. In February, Lucid Group, a Tesla rival in the luxury EV space, raised $1.5bn from a share sale.

EV start-ups which hope to survive the looming shake-up will follow suit. For those that can hang on, the long-term trends are in their favour. Governments across the world are pushing to reduce carbon dioxide emissions. Goldman Sachs predicts EV sales will hit 73mn units by 2040, up from about 2mn in 2020. EVs are expected to account for 61 per cent of global car sales by then.

Shares across the EV industry have sold off sharply, with losses of between 70 to 90 per cent over the past 12 months. Having stalled, not all will be able to start up again.