Startup electric vehicle (EV) company Nikola’s (NKLA) woes have continued into 2024, and the penny stock has lost over 12% of its value so far. Longer term, the company has lost almost 95% of its value over the last three years - but as a former meme stock, it remains popular with a section of retail investors who see it as a potential multibagger.

However, many others see the company as headed towards bankruptcy. To be sure, several startup green energy companies have gone bankrupt over the last two years. The list includes names like Arrival (ARVLF), Bird Global (BRDSQ), Lordstown Motors (RIDEQ), Electric Last Mile Solutions (ELMSQ), and Proterra (PTRAQ).

The common thread between these companies is that they went public through a special purpose acquisition company (SPAC) merger – a group that also counted Nikola among its early adopters in 2020. At its peak that year, Nikola’s market cap surpassed that of Ford Motor (F) – which was possibly the first warning about an impending bubble in the EV industry, as Nikola hadn’t even started delivering its vehicles by then.

The EV Bubble Has Definitively Burst

The bubble in EV stocks eventually burst in 2022, but not until after we saw Rivian’s market cap surpass $150 billion while Tesla’s (TSLA) market cap peaked above $1.2 trillion – ahead of the combined market cap of all other leading automakers.

However, the sector’s joyride ended in 2022, when the Fed embarked on its most aggressive rate-hike campaign in decades. This effectively pulled the plug on the supply of easy money which was the lifeline for almost all of the companies in the startup green energy ecosystem, given their massive cash burn and the need for frequent cash infusions.

Nikola’s Troubles Stretch Beyond Macro Woes

While startup EV companies have blamed poor macros, which include higher interest rates and a macroeconomic slowdown, for their woes - Nikola’s troubles stretch well beyond this unsupportive environment. 

The company has a troubled past, and a few months after its listing, Hindenburg Research accused it of fraud and misrepresenting the ability of its vehicles. The company’s founder, Trevor Milton, resigned shortly after the allegations and was subsequently found guilty of fraud.

Incidentally, in 2021, Hindenburg Research also accused Lordstown Motors of fraud, and the company has since gone bankrupt as it could not raise cash to fund its perennially cash-guzzling operations.

NKLA Is a Much Different Company Now

To be sure, Nikola has now distanced itself from Milton, and is a much different company. It has sold the Badger pickup truck program, exited Europe, and is now focusing on hydrogen fuel cell electric trucks and HYLA infrastructure solutions, primarily in the California and Canadian markets.

The company held $464.7M of unrestricted cash on its balance sheet at the end of 2023, which is the highest in two years. But while that cash pile helps increase the loss-making company’s runway, it has come at a steep cost, in terms of a bloated outstanding share count.

Specifically, Nikola's outstanding shares total almost 1.16 billion now – three times the amount at the time of its SPAC merger. Notably, along with selling shares to raise cash, Nikola has also been using stock-based compensation generously. The company’s stock-based compensation was $75.4 million in 2023 - which, for context, is just about 10% of its current market cap. While Nikola expects stock-based compensation to fall to around $30 million in 2024, that figure is still high, based on the company's size.

Even with the fat stock-based compensation, we've seen quite a churn in Nikola’s C-suite. The company has had four CEOs in as many years, while CFO Anastasia Pasterick quit the position last year after a brief span of only 6 months.

Nikola Stock 2025 Forecast

During Nikola’s Q4 2023 earnings call, the company’s CEO Steve Girsky tried to sound upbeat regarding the company’s 2025 outlook. He said that if the company can increase vehicle selling prices and reduce production costs, “we believe we can be in a position to produce a positive cash contribution margin on every truck as we transition into 2025.”

He also said, “We're starting the year in a strong position as demand is not a constraint, and we believe we can sell every truck we can build.” The company is hopeful of turning positive on the EBITDA level in 2025. During the earnings call, Girsky also ruled out any further capital raise in the near term. 

Nikola might not go bankrupt for at least a few quarters, thanks to the massive capital raise and the lower expected cash burn, but it is too risky a name to bet on as a potential multibagger, as well.

While the company is a lot more focused now, and only targeting a few markets to lower its cash burn and maximize the return on capital, I would still give NKLA stock a miss, and would rather stick with some of the more credible names in the startup green energy ecosystem.