In a market teeming with enthusiasm toward electric vehicle equities, Tesla (NASDAQ:TSLA) is still the bar against which all newcomers are measured and that’s the case with Nikola (NASDAQ:NKLA). But for risk-tolerant investors, Nikola stock offers promise though it doesn’t need to be a second coming of its aforementioned rival.
Let’s get the glaring red flags out of the way first. Nikola has nearly quadrupled since going public via a merger with a special purpose acquisition company (SPAC), but after flirting with $94 in June, NKLA stock closed below $40 on Aug. 27.
Second, the aspiring electric truck maker has scant revenue, meaning it has no earnings. At this point, Nikola revenue is derived from reservations for the Badger hydrogen-powered truck, not actual sales of that vehicle.
Given the “show me” state of affairs Nikola, by any metric, the stock is expensive, but when there’s any sign of good news, investors rapidly bid the stock higher.
For example, waste hauler Republic Services (NYSE:RSG) earlier this month announced a pact with Nikola to “purchase 2,500 electric waste and recycling collection trucks, representing the industry’s first large-scale commitment to fleet electrification.” Nikola stock jumped 22% on the news signaling for investors that can handle the turbulence, there’s opportunity here.
All About Trucks
As noted above, market participants are likely to continue measuring all other EV names against Tesla, but Nikola isn’t the most germane rival to Elon Musk’s outfit and that could play into Nikola investors’ favor. In the first half of 2020, Tesla controlled over 80% of the North American EV market, but that was through cars.
Nikola’s focus is on hydrogen-powered trucks. While Tesla is getting into the truck business, its vehicles are powered by lithium-ion batteries that are charged via plug-in.
“NKLA’s mission is to transform the transportation/trucking industry by offering both pure electric and hydrogen electric powertrains,” said Wedbush analyst Dan Ives in a note in which he initiated coverage of the stock with a “neutral” rating and $45 price target.
Hydrogen is part of the renewable energy conversation, but it’s long been overlooked relative to alternatives. That’s poised to change because costs – the primary stumbling block to wider hydrogen adoption – are declining in a big way. Nikola sees opportunities to make its imprint with falling hydrogen costs and a wide network of charging stations.
“Nikola believes it can make a difference with its unique technology and emphasis on trucks powered by fuel cells that use hydrogen and oxygen from the air to power the car, leaving behind only water vapor,” Ives wrote.
Hydrogen is why Nikola focuses on trucks. Sleek as some EVs are, say a Tesla Model 3, they aren’t large enough to carry bulky hydrogen tanks. Pickups and trucks for industrial, however, can accommodate those tanks.
Speaking of Costs …
Financial terms of the aforementioned deal with Republic Services weren’t disclosed, but assuming Nikola can make good on this order, it could be the start of something significant because the company is positioned to undercut rival waste-hauling vehicles on price.
Nikola Chairman Trevor Milton said “the intention was to be below [$500,000] per truck, which is the approximate price of other electric garbage truck solutions,” writes Cowen analyst Jeffrey Osborne. “The higher upfront costs versus a traditional [internal combustion engine] garbage truck would then be offset by lower operation and maintenance costs over the life of the vehicle.”
Given the gravity of the Republic Services accord, a neutral view on Nikola is likely appropriate because the company has to show investors and a client it can deliver the goods. So, the measuring stick for Nikola right now isn’t Tesla, but rather Nikola itself.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.