Stay Clear of NKLA Stock Until Nikola Proves It Can Make Something
I have never, ever believed in lying to readers. So how, then, can I refer to Nikola Corp. (NASDAQ:NKLA) as an electric-vehicle maker when it is in reality a wannabe EV maker? Or that NKLA stock represents at this point a bet on a thus-far-failed company that deceived investors and saw its founder leave in disgrace?
The most cynical view I can imagine — and perhaps not that far off — is that Trevor Milton may not have cared all that much about what he did or didn’t tell his backers and investors. Would you care if you could make off with 91.6 million shares, worth a cool $2.62 billion?
By my unconventional definition, NKLA stock today isn’t all that far from a “sin stock.” It’s a sin to hoodwink believers and for Milton to enrich himself when under his leadership.
The company shot the video, “Nikola One in Motion.” The supposedly-working vehicle was towed to a remote hilltop and “simply filmed rolling down the hill,” according to a bombshell report by Hindenburg Research.
The only question now, barely a quarter later, is to what extent the company will make amends, permanently correct course and, oh yeah, make some actual trucks that work.
NKLA Stock and Investigation Headaches
To be fair, NKLA stock sits at a crossroads. It all depends on whether the company can leave behind its shady past for good. But it won’t be easy. Right now, Nikola faces twin federal investigations into its “ocean of lies,” to quote Hindenburg.
Both the U.S. Securities and Exchange Commission and the Department of Justice want to know what happened. Under the new Biden administration, you can bet the heat will only get turned up, not down, on corporate malfeasance.
From a media maven point of view, I believe Nikola has done a poor job transmitting a message of overhaul and renewal. It has any number of options available to it, from renaming itself to running a media campaign similar to what Wells Fargo (NYSE:WFC) launched after its disgraceful fake accounts scandal. But all I see is Milton hanging on to a third of all NKLA stock. That still makes him (as of December) the company’s largest shareholder.
Why do this? Well, the EV market is crowded. The companies making vehicles grow by the minute. And those with plans to get rolling, such as Fisker Inc. (NYSE:FSR), have the bona fides to suggest they’ll be for real.
Ramping up from zero by any circumstance is tough enough. Trying to convince investors and consumers that your trucks will actually work without help from gravity is another. Committing to total transparency and persistent, positive media relations arguably represent “must dos.”
A Media Relations Path to a Makeover
For example: How many interviews is current CEO Mark Russell willing to do? Will they include plant tours? Can we hear even a few sentences about how Milton is now persona non grata despite his shareholder grip? Can we get some detailed responses to the lies Hindenburg purports to have unearthed? And do those responses include contrition? Course correction?
If I want to consider NKLA stock, these are the kinds of questions I want answered, and the action steps I need to see.
Meanwhile, I find it remarkable that NKLA stock has doubled since Christmas. Though in a sense, I don’t. Given that it hit $50 per share on Sept. 8 and cratered to $13.75 on Dec. 24, investors were truly in a “buy low” situation that has worked to their advantage.
Value investor billionaires such as Warren Buffett, Charlie Munger and Charles Brandes would no doubt commend this logic. But not entirely. For as a company unable to turn a profit, let alone offer a viable product, Nikola is not undervalued.
Meanwhile, one shining hope for Nikola appears to be retreating further into the rearview. It continues to negotiate a non-binding deal with General Motors Co. (NYSE:GM) to produce hydrogen fuel cell technology, but it’s uncertain at best where that will go. GM announced on Jan. 27 that it would team up with Navistar (NYSE:NAV) as it introduces a new fuel cell vehicle in 2024, the International RH Series truck.
Making Sense of Nikola’s Future
Regardless of whether anyone at Nikola wants to hear me out, I do believe that four months removed from a scandal isn’t enough time to prove that all the closets have been cleaned.
I admire Russell and company for trying to soldier on with GM as though it were business as usual. But in reality, not stopping long enough to pause and examine an apparently unethical company culture that may have followed Milton’s lead amounts to business as unusual.
In this case, file any analyst projections, share price targets and quarterly reports under “blah, blah, blah.” It’s a vote of conscience that might well deserve laughs from the boys in the back room, but I have no intention of making Trevor Milton richer than he already is.
Nor from a common-sense point of view can I support an EV sector company that, when it comes to making a difference for the world’s climate, is thus far “all talk, some lies, no action.”
I recently received a crumb of hate email slamming my admittedly strident views regarding NKLA stock. Bring it on, people. While I have my favorite investments and those I dismiss, putting my money into a company that has fooled so many is beyond the pale for me. And if I can’t put my money there, how in good conscience can I suggest you do?
I take no delight in this. In fact, I hope for a NKLA stock comeback accompanied by the company making a clean cut with its suspect past and concrete progress towards addressing the future. Investors, the EV sector and the planet would all benefit. They all deserve it.
And that’s my truth, as best as I can tell it.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
