Nikola downgraded to ‘sell’ by CFRA amid supplier issues and potential ‘legal risks’

Nikola garbage Truck
  • CFRA analyst Garrett Nelson downgraded shares of Nikola to “sell” and lowered his price target to $12 on Thursday.
  • The analyst cited “supplier issues” with the Tre semi-truck and potential ‘legal risks’ from false statements in his reasoning.
  • The company’s 10-K confirmed several allegations made by Hindenburg Research in Sept. of last year.
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CFRA downgraded shares of Nikola to a “sell” on Thursday and lowered the price target to $12 per share after the electric-vehicle maker reported earnings.

Senior analyst Garrett Nelson cited “supplier issues” and potential “legal risks” as the main reasons for the downgrade.

Nikola was able to beat consensus earnings estimates in Q4 posting quarterly EPS of -$0.17 versus an expected -$0.24, but the pre-revenue company revealed its 2021 deliveries for the Tre semi-truck would total only 100 units due to supplier issues, down from 600.

As for legal risks to the company, Nikola disclosed in its 10-K that an internal review conducted by Kirkland & Ellis found at least nine statements made by the company and former CEO Trevor Milton were “inaccurate in whole or in part.”

This confirmed several allegations made by short seller Hindenburg Research back in September of last year. However, the 10-K also said that other statements made by Hindenburg were incorrect.

Nikola’s founder Trevor Milton stepped down on September 21, 2020, after fraud allegations were made public. Recent reports out of CNBC indicate Nikola has been forced to pay $8.1 million for its founder’s legal fees even after his departure.

Analyst Dan Ives of Wedbush wasn’t as concerned about potential legal risks as his peers, however. In a note to clients on Friday Ives said, “we would characterize last night as a positive step in the right direction after navigating a Category 5 storm post the short report/Trevor departure.”

Ives called Nikola a “prove me” story and cited investments into hydrogen-powered battery technology, a friendly clean energy environment from the Biden administration, and partnership momentum as his reasoning.

Ives holds a “neutral” rating and a $25 price target on Nikola.

On the other hand, CFRA’s Garret Nelson said, “even absent its legal issues, we think NKLA stacks up less favorably versus other EV names.”

Nikola holds three “buy” ratings, eight “neutral” ratings, and now one “sell” rating from analysts.

Shares of the EV maker were down 4.99% as of 11:36 a.m ET on Friday.

NKLA chart
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Tesla has ‘significant first-mover advantage’ in the electric vehicle space – but 3 smaller names are also poised to succeed as EV sales climb in 2021, CFRA says

Fisker Ocean
The Fisker Ocean.


Tesla has established a “significant first mover advantage” over new entrants in the ever-expanding electric vehicle market, but a few other smaller names stand out, according to CFRA’s Garrett Nelson.

In a note published Wednesday the senior equity analyst said Amazon-backed Rivian, Lucid Motors, and Fisker will emerge as “success stories,” as EV sales climb in 2021.

Nelson uses four categories to analyze emerging electric-vehicle manufacturers: 1) the specs (price, range, etc.) and overall attractiveness of their initial vehicle models; (2) financial considerations such as their funding sources, balance sheets, and liquidity; (3) the growth opportunity of their sub-industry; and (4) the experience and credibility of management. 

He said all three names fare well in each category. Additionally, all three automakers will be among the first to bring electric vehicles to the road, with Rivian and Lucid expected to put models on the road this year and Fisker in late 2022. 

Fisker debuted in public markets in October, while Lucid Motors announced a merger with SPAC Churchill Capital Corp. IV on Monday. Rivian is looking to go public as soon as September at a valuation of $50 billion, Bloomberg reported earlier this month. 

Nelson added that Tesla has an advantage over new entrants; citing how the company increased its US EV sales volume by over 50% last year.  

“With all the talk of increased competition from new EV models in 2020, Tesla grew its market share from an estimated ~58% share in 2019, as models like the Audi e-Tron, Jaguar I-PACE, and Nissan LEAF largely disappointed from a sales perspective,” Nelson added. 

CFRA forecasts that US EV sales will grow by over 50% to exceed 500,000 units in 2021, especially if the Biden administration passes legislation that could benefit EVs. The research firm has a “strong buy” rating on Fisker, and a “hold” rating for Tesla. 

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