Nikola Stock: Investors in Nikola (NKLA) stock are offloading their shares, but the reasons behind the selling spree remain unclear.
Early trading witnessed a 4% drop in the battery and hydrogen fuel-cell trucking company’s stock, reaching 53 cents per share. Earlier in the day, the stock hit a new 52-week intraday low, while the S&P 500 and Nasdaq Composite experienced minor gains.
With limited news available to explain the declines, Nikola has yet to respond to requests for comment.
In recent developments, Nikola shareholders have just cast their votes on a proposal to increase the number of outstanding shares. Many companies have predefined limits on the number of shares they can issue, making the outcome of the vote uncertain.
As Nikola requires additional capital for its operations and is nearing its limit, it will eventually need to issue more stock. The company concluded the first quarter with approximately $200 million in cash and access to around $800 million in capital, including its cash reserves. Wall Street predicts a quarterly cash burn of approximately $150 million, with positive free cash flow not expected until 2027.
Nikola could employ a reverse stock split as another potential solution to address its share issue, effectively reducing the number of outstanding shares and increasing the price of each share.
Implementing a reverse split would also address another problem facing the company. Nikola’s stock has been trading below $1 for over 30 days, violating a rule of the Nasdaq Stock Market. The company has approximately six months to rectify the situation.
However, a reverse split requires a vote from Nikola shareholders. Hence, the combination of a low share price and another vote may be contributing to investor unease.
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According to accounting expert Robert Willens, a vote for a reverse split is not always necessary. He states, “In most jurisdictions, in fact, the split can be implemented by means of a board of directors’ resolution, without the need for any sort of shareholder vote.”
Regardless of the cause behind Tuesday’s decline, Nikola stock has experienced a significant descent from its peak. After the company’s merger with a special-purpose acquisition company (SPAC), shares reached nearly $94 in June 2020, surging by approximately 170% over three days following the closing.
These remarkable gains played a role in fueling the boom in SPAC mergers. In 2019, around 60 SPACs raised funds, a number that grew to 248 in 2020, 613 in 2021, 84 in 2022, and 10 so far in 2023.
Although Trevor Milton, the founder of Nikola, opposed raising the cap on outstanding shares in June 2022, he had already resigned in September 2020. As of April 10 this year, he continues to hold a significant amount of stock and retain voting rights, despite his conviction for securities fraud in October 2022. The conviction stemmed from misleading statements he made concerning Nikola’s zero-emission truck technology.