In recent times, numerous electric vehicle (EV) companies, including Xpeng Motors (NYSE:XPEV) and Rivian (NASDAQ:RIVN), have seen remarkable growth in their stock prices. However, the most notable surge has been witnessed in Nikola (NASDAQ:NKLA), which managed to quintuple its value from its June lows.

Nikola’s journey into the public market took place in 2020 through a special purpose acquisition company (SPAC) merger, a trend that gained popularity among EV companies like Lucid Motors (NASDAQ:LCID) and Fisker (NASDAQ:FSR) for going public. Unfortunately, Nikola’s initial listing was marred by allegations of fraud and misrepresentation from Hindenburg Research, leading to the resignation of founder Trevor Milton, who was later found guilty of fraud.

In an effort to rebound, Nikola shifted its focus to execution, but it struggled to deliver a substantial number of its promised trucks. As doubts about the company’s sustainability grew, its stock plummeted to an all-time low of $0.52 in June, and the Nasdaq threatened to delist it for not meeting the minimum threshold of $1 per share.

Reasons for Nikola’s Stock Gains

Surprisingly, despite its troubled history, Nikola stock has seen a significant upswing. Several factors contributed to this surge, including a $41.9 million grant from the California Transportation Commission for building hydrogen refueling stations and a deal with BayoTech for the purchase of 50 Class 8 hydrogen trucks. However, some analysts believe that the recent rally may be driven mainly by short covering, given the stock’s 25% short interest ratio.

Business Restructuring

In response to its challenges, Nikola has restructured its operations, focusing on the North American market, liquidating assets, and reducing its workforce. The company aims to reach gross profit breakeven by the end of 2024 and achieve positive EBITDA by 2025. To support its ambitions, Nikola has been raising capital, but this move has led to dilution for existing shareholders, and its market cap has surged to $1.8 billion with a price-to-sales multiple of around 30x, which some view as high.

Wall Street Bearish Outlook

Wall Street analysts have a bearish outlook on the stock, with all six of them currently rating it as a Hold. The mean target price stands at $2.40, trailing behind the current soaring valuation. Nikola’s future largely hinges on its ability to secure more funding, as the EV industry remains fiercely competitive and capital-intensive. Companies like Lucid Motors and Rivian have an advantage with strong financial backing from Saudi Arabia’s sovereign wealth fund and Amazon, respectively.

Conclusion

Considering the challenges Nikola faces and its questionable stock performance, some experts advise investors to avoid it at its current valuation. Instead, they suggest exploring other EV startup companies with stronger balance sheets, as the industry contends with a price war and challenging market conditions.

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