Regulation Is Lifting The EV Market, Nikola Too
The entire electric vehicle industry is getting a lift from the Biden administration. The president has already issued executive orders that strengthen the U.S. fight against climate change and the EV industry at large. Among them are a number of orders aimed at curbing U.S. oil production as well as a plan to make EV standard for the Federal automotive fleet. Nikola (NASDAQ:NKLA), a would-be leader in the EV market, was not immune to the updraft in sentiment and up 100% from its lows. The question is if the updraft for this stock will last, and how far will it go?
The president is expected to enact further legislation later this year and there is the growth outlook for the EV market at large. The latest figures have the EV market growing at a greater than 50% CAGR for the next 3 to years which is not only robust but an acceleration from the previous estimate. And it might still be too low. In that light, assuming that Nikola can get its act together, there is a substantial amount of upside potential built into this stock.
Nikola Is A Target For Crowd-Sourced Investing
Believe it or not but the surge in both share price and volatility seen in Nikola shares can also be attributed to GameStop (NYSE:GME). Well, not to GameStop specifically but to the conditions that led to GameStop’s historic short-squeeze. Nikola is another heavily shorted stock, if not one as heavily shorted as GameStop, with a short-interest running in the 30% to 35% range. That’s ample fuel for a short-covering rally but I wouldn’t expect to see shares surge by the quadruple-digits just yet.
The problem, or catalyst(?), here is crowd-sourced investing and specifically social media-induced trends. Social media platforms like Reddit host groups like WallStreetBets that organize large investment pools of retail trader money. Then, with the aid of platforms like Robin Hood, they gang up on the big-money shorts and spark a short-squeeze. The good news for NKLA investors is that this company has a more fundamentally-sound business model than GameStop albeit one that is yet to produce any real revenue.
The Latest Developments In Nikola
There are two developments of late that investors need to take note of. The first is an additional $7 billion in spending that GM is using to build out its EV infrastructure. The initial announcement does not include any special deals with Nikola but don’t think that one is not a possibility. GM is pushing toward dominated the retail and commercial EV markets and Nikola could very well be a part of that future. If not with the Badger then with its semi-trucks or hydrogen fuel cell platform.
Nikola already has a deal for batteries and components that could easily be increased to include manufacturing support and other assistance as the company begins production. Nikola is expecting to begin production on its semi-trucks this year with hydrogen fuel cell models expected by 2023.
The second is a deal with Arizona for favorable electric rates. The rates are important not for charging stations, but for hydrogen production which is another of the company’s growth avenues. Nikola says with the “innovative” rate schedule it will be able to produce hydrogen at competitive prices and be able to offer lease-deals for its trucking clientele.
Technical Outlook: Nikola Is Not In Reversal Yet
The price action in Nikola is attractive but we’ve seen this before. The price popped over the short-term moving average in what should have been a bullish move only to fall back to new lows. This time things may be different but it is still too early to tell. With no major catalyzing news and none expected this stock may drift upward with the market but a strong rally is not expected. The latest action suggests strong resistance at the $30 that may keep prices in check. If this level can be surpassed a move up to $35 and $45 will be possible.
