Nikola Is A Dual Narrative Investment
Nikola (NASDAQ:NKLA) shares have been on a wild ride over the past two months. A series of conflicting news reports, a scandal in the e-suite, and rumors have supported volatility and indirection. The reason is simple. What exactly is the investment thesis behind Nikola and where is the company going now. The short answer; Nikola is a dual-play narrative with a bright future in both directions. There may be some near-term volatility, there may be some stumbles, but this stock is going higher one way or another.
The most recent news is a rumor. A rumor that Nikola and GM (NYSE:GM) reached a deal for the production of the Badger. The news was first posted on the GM website but later removed and neither company has confirmed it. According to the rumor, GM will commence production of the Badger using the Ultium battery system and be the exclusive provider of hydrotec fuel cells. If true, the deal would be worth billions to both companies and launch Nikola firmly into the retail/POV market. Shares of Nikola popped despite the uncertainty, gaining more than 15% and breaking above the short-term moving average.
GM Doubles-Down On EV
GM just made an announcement about EV that surprisingly did not mention Nikola or the Badger. GM has long been focused on the EV market with a plan to “put everybody” in electric. The company’s goal is to rival and surpass Tesla as the U.S. leading EV automaker but they have a long way to go. In 2018 Tesla delivered nearly 200,000 vehicles to account for more than 50% of the U.S. market. The Chevy models came in a distant second with about 10% of the U.S. market.
Details of GM’s plan include a ramp in spending, an acceleration of new-model rollouts, and increased battery production. The company plans to increase spending by 35% to $27 billion in its efforts to capture market share. GM plans to offer EV across its full line-up with models ranging from sub-$30K through the $100K price point. To reach that goal, the company is now planning to have 30 new models by 2025 versus the 20 by 2023 target previously set.
Nikola could be a key player in GM’s drive to be number one in the EV market. The Badger is a great-looking full-sized pickup that can easily compete with Ford’s F-Series among others. The F-Series is the nation’s number-one selling brand of trucks, stealing some of that market share will be a big help in GM’s quest.
The Nikola Story Isn’t Just About The Badger
As much as the Badger is stealing the headlines the Nikola story is much more than that. In fact, the Badger could be considered a “side project” next to the company’s plans for the class-8 and long-haul market. Where the first Badger prototypes are yet to be made The first of the BEV prototypes are already being tested. The analysts tend to agree that, without a major OEM deal, the Badger is a costly project that will set back Nikola’s goals in the class-8 market.
The Technical Outlook: Nikola Shares On The Cusp Of Reversal
Shares of Nikola gained more than 20% in the wake of rumor only giving up a minimal amount in the absence of GM news. The price action looks bullish for the near-term at least and could lead to a much bigger move. Support has been confirmed at the $19 level and looks like a bottom. The move above the short-term EMA could be the beginning of a reversal if shares can get above resistance that is near $27.50. Even so, if price action moves above this level with no news there is a risk they won’t stay there. If, when, there is news the upward movement will be counted in the 10% of percentage points if not more. The next significant point of resistance is near the $50 level or about 60% above the current resistance level.
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