Nikola Corp (NASDAQ: NKLA) stock price is off to a bad start in 2024 as demand for EV shares crash. The stock has already crashed by 27.6% this year, meaning that it has fallen by over 99% from its highest point on record, costing investors billions of dollars. It has fallen by over 75% in the past 12 months, lagging the Nasdaq 100 index, which is up by over 50%.
Why is NKLA crashing?Nikola is not the only EV or new-generation vehicle company that is not doing well. After doubling in 2023, Tesla shares have crashed by over 13% this year alone. Mullen Automotive (MULN) has crashed by 26% while Fisker, Lucid, and Rivian have all plunged by over 20%.
Nikola and other EV stocks have crashed for two main reasons. First, there is a major risk that the Federal Reserve and other central banks will not cut rates as soon as expected. Recent data from the US and other countries shows that inflation has remained at an elevated level and the ongoing crisis in the Middle East is not helping.
EVs are highly sensitive to interest rates since most people buy them on credit. Recent data shows that people with prime credit scores are paying almost 7% in interest while deep subprime are paying over 21%. If interest rates remain this high, there is a possibility that EV sales will remain under pressure.
Second, Nikola stock price has plunged because of internal factors, with most analysts expecting another fundraising round this year. Nikola has always been a highly dilutive company, which has seen its outstanding shares jump from 29 million in 2019 to over 992 million today.
The most recent fundraising came in December when the company announced the pricing of $175 million Green Convertible Senior Notes. In all, Nikola has burned billions of dollars in the past few years as it advanced its R&D process.
Nikola has now started building hydrogen trucks, which is a good thing. It produced 42 Class 8 hydrogen fuel cell electric trucks and sold 35 at wholesale. Its truck has a range of 500 miles and refuels in less than 20 minutes.
While this is good progress, the issue is that Nikola will not become profitable any time soon. As we have seen with companies like Rivian and Lucid, EV companies continue burning cash for years after launch.
This means that Nikola will need to raise cash this year since it ended last quarter with over $365 million in cash and investments. While it has raised more money since its last results, Nikola’s net loss in the last five quarters totals over $1.26 billion.
What next for Nikola stock price?
Regular readers know that I have published many bearish articles on Nikola, which you can read here, here, and here. In the chart above, we see that the NKLA share price has been in a deep sell-off, and this week, it moved below the key support at $0.6621, the lowest swing on December 11th. In this chart, we also see how the company has increased the number of its outstanding shares.
Therefore, the outlook for the stock is still bearish, with the target price of $0.50. However, there is a caveat in that Nikola has a high short interest of 16%. Like the heavily shorted Cassava Sciences, there is a possibility that the stock could have a short squeeze.
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