Nikola Stock Rose as Its Production Upside Was Tempered by Execution and Competition

Nikola Stock

Nikola Stock (NASDAQ:NKLA)

On Monday, Morgan Stanley began coverage of Nikola Corporation (NASDAQ:NKLA) with a Hold-equivalent rating, noting that the risk/reward ratio is now balanced.

An equity analyst by the name of Dillon Cumming praised the progress the firm has achieved in terms of production and stated that the stock provides an interesting option to play a secular trend toward zero-emission automobiles. Yet, he claims that he cannot participate because of increased competition from established companies in the automotive sector and new businesses entering the market, as well as dangers about the capacity of the firm to carry out its goals.

We anticipate competition from incumbents and new market entrants to remain robust – with NKLA likely to benefit from a more moderate speed market’ dynamic, Cumming told clients, despite the fundamentally favorable prognosis for overall ZEV penetration and NKLA’s own efforts. “Although we believe that NKLA’s commercialization efforts are continuing to be reasonably strong compared to the incumbent average, we anticipate that NKLA’s output of battery-electric vehicle (BEV) trucks (i.e., supply) may surpass underlying demand in the near-to-medium term due to possible problems surrounding charging infrastructure maturity. This has already started to appear in sell-through dynamics at the dealer level for NKLA.”

As a result, he said that he believes Nikola (NKLA) may need to be earlier to the game and, as a result, constrained in the short future. In the longer future, PACCAR Inc. (PCAR), Daimler (OTCPK:DTRUY), and Volvo AB (OTCPK:VOLAF) were mentioned as crucial OEM rivals.

According to Cumming, the “possible outcomes for both Nikola stock and long-term earnings power remains broad” because of the execution risk. He assigned an Equal Weight rating to the stock and set a price objective of $3.00. He said that a $1 bear case or an $8 bull case may develop depending on how well management handled the turbulent macro environment.

The price of Nikola stock was up by 7.53% on Monday.

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