Talk about a V-shaped recovery.
Shares of electrification startup Nikola Corp. NKLA experienced the bounce back this week that few still predict for the nation's economy following the COVID-19 pandemic.
Storytelling, more than products and revenue, is stoking market enthusiasm for electric trucks, including Workhorse Group WKHS. The early-stage maker of electric delivery vans is attracting heady interest because of a possible windfall from startup Lordstown Motors Corp.
Tortoise Acquisition SHLL, siring hybrid-electric truck maker Hyliion Inc. to public trading this quarter, is advancing at a turtle-like pace after an early hare-like dash following announcement of its reverse merger.
Nikola bounces around
Nikola expects to begin generating meaningful revenue in late 2021. That assumes a successful manufacturing launch of its battery-electric heavy-duty Tre model in a joint venture with CNH Industrial N.V. CNHI subsidiary IVECO in Ulm, Germany.
The lack of revenue, never mind profit, mattered little to investors who drove Nikola's price to almost $100 per share in the days following its June 2 emergence as a public company in a reverse merger with special purpose acquisition company (SPAC) VectoIQ.
The runup proved short-lived as Nikola Executive Chairman Trevor Milton sparred on Twitter with short sellers betting the price would fall. He urges investors to get on board for the long haul and embrace his vision of zero-emission trucks contributing to a cleaner planet.
Nikola shares got a brief kick June 29 from cash deposits on the Badger, a battery-electric pickup truck with a fuel cell range extender. Nikola still needs a manufacturing partner.
Could Toyota Motor Corp. TM, which recently fell behind electric car maker Tesla Inc. TSLA as the world's most valued automaker, be a candidate? Toyota makes the Mirai fuel cell sedan and is partnering with Kenworth Truck Co. to build a test fleet of 10 Class 8 fuel cell trucks. It also sells the market-leading Tacoma midsize pickup and the less-popular Tundra full-size pickup.
Diverging target prices from analysts at J.P. Morgan and Cowen initiating Nikola coverage created an opinion gap of more than $30. Early investors headed for the exits with hefty profits.
Both analysts lauded Nikola's long-term business plan – leasing fuel cell trucks with hydrogen fuel and maintenance to keep them on the road for seven years and one million miles.
In setting a target of $45, J.P. Morgan said the stock, then trading around $70 a share, was fully valued. Cowen, which helped VectorIQ with its own initial public offering in 2018 and advised on the reverse merger to bring Nikola public, set an outperform target of $79 a share.
Supply and demand imbalance
Expiring lockups on investors who bought VectorIQ shares at $10 in a pre-merger private investment in public equity (PIPE) put up to 50 million Nikola shares in play along with warrants that would add 23 million new shares. The result: too many shares and too few buyers. The stock fell into the low $40s.
Sellers included longtime Nikola supporter Worthington Industries WOR, which disclosed on July 8 that it sold 5 million of its 19 million Nikola shares on July 6-7, reaping nearly $238 million before taxes. Current Nikola CEO Mark Russell joined the company from Worthington in February 2019.
The rebound to nearly $60 coincided with J.P. Morgan moving to an "overweight" rating from "neutral." Analyst Paul Coster pointed to several catalysts strengthening Nikola's prospects. Shares fell Friday along with the overall market.
"In our view, [Nikola] is currently a story-stock, but we are on board as long as the company executes to plan, and providing the stock offers a favorable risk-reward trade-off," Coster wrote in a note to clients on Wednesday, July 8.
Workhorse keeps borrowing
Workhorse is finally building its composite body electric delivery vans – called the C-Series – in Union City, Indiana. But with just 300 to 400 vans expected this year, investors spy the possible payday Workhorse could get if Lordstown Motors (LMC) succeeds in building electric pickups from licensed Workhorse technology.
In addition to a 10% stake in the startup, Workhorse gets royalties on the first 200,000 Endurance pickups made by LMC, started by former Workhorse CEO Steve Burns.
If LMC gets the $400 million it needs to retool the former General Motors Company GM car plant, it plans to build 20,000 pickups in its first year. It would also be Workhorse's contract manufacturer for the next-generation United States Postal Service (USPS) delivery vehicle. Workhorse is in the running for some or all of the $6 billion contract.
"We see the chance of winning a material USPS contract as virtually zero," Hindenburg Research said Friday in predicting a 50% decline in Workhorse shares. It said it was shorting the shares because Workhorse's "astronomical value" is out of synch with revenue.
Betting on a windfall
Investors, many of whom appear to be day traders, latched onto Workhorse because of the LMC deal. They posted unceasing stock-boosting messages during the online reveal of the Endurance by Burns and Vice President Mike Pence on June 25.
Workhorse has been long beset by dilution of its shares. It signed a potentially costly senior convertible note on June 30. It gets $70 million from High Trail Capital, the same hedge fund it borrowed $41 million from in November 2019. Workhorse must start repaying the note in October.
"With this note in place, we have much greater financial flexibility to support our current and future production needs," CEO Duane Hughes said.
The new money should allow Workhorse to build the 1,100 pending van orders from United Parcel Service, Inc. UPS and DHL. Workhorse is still seeking a $40 million credit facility.
Hyliion on a tortoise pace
Hyliion Inc., which makes a hybrid diesel-electric powertrain for Class 8 trucks, will get the Nikola reverse merger treatment as soon as the U.S. Securities and Exchange Commission completes its review.
Tortoise Acquisition announced its role as the blank check company bringing Hyliion public on June 22. That set off a runup in Tortoise shares, similar to what occurred when VectoIQ announced its plans for Nikola in March. A preorder of 1,000 trucks by logistics giant Agility on June 25 drove another surge.
Shares now traded Friday in the mid $20s.
Of the electric truck makers, Hyliion has the fewest obstacles to market. Its natural gas-electric ERX Hypertruck hybrid powertrain goes into test production in 2021 with deliveries in 2022.
There are 700 natural gas filling stations in the U.S., freeing Hyliion of creating a fueling infrastructure. The natural gas generator makes electricity to drive the truck and charge a small electric motor capable of 25 miles of pure electric driving. That range meets expected future bans on truck emissions in urban centers,
If Hyliion follows the Nikola public playbook, Tortoise shares could rise when the SEC approves the merger and again when the merger is complete. The symbol SHLL will switch to HYLN.
Hyliion can swap its zero-emissions powertrain into existing heavy-duty trucks, meaning preorders like the one by Agility, which also invested in Hyliion, could follow as fleets seek to meet zero-emission quotas beginning in 2024 under the new California Clean Truck mandate.
Click for more FreightWaves articles by Alan Adler.
Related articles:
New partners Nikola Motors and IVECO target Europe with alternative propulsion truck
$70 million financing keeps Workhorse's share surge humming
Hyliion takes reverse merger path to public trading
Photo: Hyliion
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