Nikola could fall 30% as ‘ambitious’ profit forecasts and Tesla’s first-mover advantage weigh on valuation, CFRA analysts say

nikola tre render 1
Nikola truck prototype.

  • CFRA analyst Garrett Nelson initiated coverage on EV maker Nikola with a “sell” rating and a $15 price target.
  • The price target implies a nearly 30% drop from Monday’s closing price.
  • Nelson said Nikola has “ambitious” profit forecasts and faces stiff competition from Tesla and others.
  • Watch Nikola trade live here.

CFRA analysts initiated coverage on electric vehicle maker Nikola with a “sell” rating and a $15 price target late on Monday.

Analyst Garret Nelson said in his note that Nikola could fall nearly 30% from Monday’s closing price due to “ambitious” profit forecasts, “significant execution risk”, and Tesla’s first-mover advantage.

Nelson noted Tesla’s dominance in electric vehicles will most likely translate to the commercial trucking segment that Nikola hopes to enter.

The analyst said following the launch of Tesla’s semi-truck later this year, that “it will become a preferred supplier to the Class 8 commercial truck market that NKLA intends to target.”

In an email to Insider, Nelson said Tesla will be able to “scale production more quickly given its size and cost of capital advantage over competitors” and “commercial customers will be much more comfortable buying these big-ticket vehicles from a proven EV manufacturer.”

Also, despite Nikola’s estimates for a 20%-25% profit range, CFRA sees the company remaining unprofitable for years to come. Nelson gave EPS loss estimates of -$0.70 for 2020, -$1.45 for 2021, -$1.40 for 2022, -$1.15 for 2023, and -$0.90 for 2024.

The analyst cited “the high fixed cost nature of vehicle manufacturing, particularly for smaller, niche OEMs” as his reasoning.

Nikola saw its share price rise over 600% amid a wave of EV bullishness in 2020, hitting highs of nearly $80 per share on June 9, 2020. The stock has reversed course though and has seen a steep fall, trading in the $15-$30 per share range over the past five months.

The EV stock can’t seem to mount a break-out amid increasing competition.

Nikola is scheduled to release earnings on February 25th after the closing bell. However, investors shouldn’t expect much because Nikola still has yet to produce revenues from its EV operations.

CFRA’s Nelson called the company “more of a business plan than a revenue-generating business” in his note to clients on Monday.

Still, some analysts are more bullish on the name. Wedbush’s Dan Ives upgraded shares of Nikola to “neutral” and raised his price target to $25 per share from $15 on February 1st citing the Biden administration’s green initiatives and a lack of “negative catalysts.”

“While some clear hurdles remain for Nikola to achieve its hydrogen and semi-truck vision over the next year, we believe most of the negative catalysts we were fearing have now played out in the market with a more balanced risk/reward on the name looking ahead,” Ives said in a note to investors.

Nikola traded down roughly 7% as of 1:33PM ET on Tuesday.

Nikola chart
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US EV companies rally after Biden announces electric fleet plans for the federal government

Joe Biden
President Joe Biden waves after being sworn in during his inauguration on the West Front of the U.S. Capitol on January 20, 2021 in Washington, DC.

  • Shares of American EV manufacturers are roaring higher on Tuesday after President Biden announced the federal fleet is going electric.
  • Shares of Workhorse Group, Nikola, and Lordstown Motors all jumped double digits after the news broke.
  • The US federal fleet is made up of 645,000 vehicles which cost taxpayers some $387 million in fuel costs in 2019.
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US-based EV companies are rallying on Tuesday after President Biden announced the entire federal vehicle fleet will go electric with American-made products.

“The federal government also owns an enormous fleet of vehicles, which we’re going to replace with clean electric vehicles made right here in America, by American workers,” said Biden on Tuesday.

President Biden continued, “this would be the largest mobilization of public investment and procurement, infrastructure and R&D since World War 2.”

Shares of Workhorse Group, Nikola, and Lordstown Motors have all responded, jumping double digits after the announcement.

Read more: MORGAN STANLEY: Buy these 9 sports-betting stocks ahead of the industry’s expected legalization in 12 states this year and its growth to $10 billion in 2025

The US federal fleet comprises 645,000 vehicles, including 245,000 civilian vehicles, 173,000 military vehicles, and 225,000 post office vehicles.

Additionally, according to the Federal Fleet Report, the federal government spent over $386 million on fuel costs to run the fleet in 2019 alone.

The move by the Biden administrations continues the EV boom markets have witnessed over the past few years.

The Global X Autonomous & Electric Vehicles ETF saw 83% returns over the past year, while big names like Tesla have done even better, returning 193% to shareholders during the same period.

Now American EV manufacturers are seeing a spike in share prices after Biden’s announcement. Workhorse Group, Nikola, and Lordstown Motors saw their shares spike as much as 30%, 15%, and 19%, respectively.

Workhorse group may have benefitted more than its peers because the company was already in talks with the USPS to provide delivery vans, but the process stalled. Now investors are hoping the contract will be picked up again, and shares are responding.

Shares of Workhorse traded at $31.62 as of 11:50 am EST, giving the company a $2.98 billion market cap.

While shares of Nikola traded at $23.77 and shares of Lordstown Motors traded at $26.99. 

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