$NKLA Hindenburged Short SqueezeAfter there was a glimmer of hope that it would escape bankruptcy thanks to the high demand for its new FCEV truck, Nikola Corporation (Nasdaq: NKLA) finds itself in a highly precarious situation once again after Proterra Inc. (NASDAQ: PTRA) declared bankruptcy. As PTRA is the sole battery supplier for the company’s FCEV truck, NKLA may find it hard to fulfill the orders it received for its new truck. Considering the company’s financial struggles, the possibility of bankruptcy is once again high which makes NKLA stock a potentially profitable short play.
NKLA Fundamentals
With the company pivoting to hydrogen energy, NKLA entered into a long-term strategic partnership with PTRA to supply it with batteries for its Tre BEV and Tre FCEV trucks. The company started producing the Tre FCEV truck on July 31st amid optimism that it would save the company thanks to the high demand it is witnessing. This demand was shown with the company sharing that it received 202 orders for the new truck.
However, in an unfortunate turn of events, PTRA filed for chapter 11 on August 7th – only 1 week following the start of production of the FCEV truck. In this way, NKLA may be unable to fulfill the orders for its truck which will severely impact the company’s long-term prospects given its dire need for cash to continue operating.
The results of PTRA’s bankruptcy are catastrophic for NKLA and its shareholders since the company would have to resort to dilution to raise capital which may increase the company’s outstanding shares significantly since its shareholders approved the proposal to raise the authorized shares from 800 million to 1.6 billion. Based on this, shorting NKLA stock may prove to be a profitable decision given that its options now are either bankruptcy to restructure its business or mass diluting its stock which will impact the share price negatively.
NKLA Financials
One of the most alarming figures in NKLA’s financials is its cost of revenue which is $24.9 million according to its Q2 2023. This figure is alarming because during this time the company only realized around $15.3 million in revenue. This discrepancy between revenues and cost of revenues resulted in a gross loss of $27.6 million and a jaw-dropping gross margin of -179%. This imbalance has drastically strained the company’s assets as its total assets decreased from $1.23 billion in Q4 2022 to $1.13 billion in Q2 2022 due to a sharp decrease in restricted cash and cash equivalents from $10 million to $600 thousand.
This sharp plummet is likely a result of NKLA’s gross loss and current liabilities of $233.1 million sapping its cash balance. Despite this, the company has done a tremendous job decreasing its current liabilities from $383.5 million in Q 4 2022 due to declines in its accounts payable and accrued expenses, leading total liabilities to drop from $710.1 million to $614.7 million.
At the same time, NKLA’s operating costs slightly improved YoY from $142.9 million to $140.9 million. However, the company’s net loss increased substantially YoY from $172.9 million to $217.9 million. Having said that, the company’s net loss would have been much higher if not for NKLA divesting its Iveco stake which provided it with $70 million.
Technical Analysis
NKLA stock was in a bullish trend as it was trading in an upward channel that it recently broke. Looking at the indicators, the stock is above the 200 MA which is a bullish indication, but below the 50 and 21 MAs which is a bearish indication. Meanwhile, the RSI is neutral at 36 and the MACD is approaching a bullish crossover.
As for the fundamentals, NKLA may drop drastically in the near term following PTRA’s bankruptcy since it may not be able to fulfill the orders it received for its new FCEV truck given that PTRA was the sole battery supplier for the truck. In this way, it is very likely the company resorts to mass diluting its shares to raise the capital it needs since it may not generate enough capital from its operations.
With the stock trading near its resistance, investors could wait for retests of the resistance and go short with take profits near $1.96, $1.32, and $1, while setting a stop loss near $2.3 if it breaks resistance.
NKLA Forecast
After PTRA declared bankruptcy, NKLA is in a tricky spot since the company intended to raise funds from the purchase orders it received for its FCEV truck and limit dilution. However, now that the company may not be able to fulfill these orders due to PTRA being the sole battery supplier for the FCEV truck, its chances of surviving its financial struggles appear to be slim to none. In light of this, investors could find it profitable to short NKLA stock given that the company may join PTRA in declaring bankruptcy or mass diluting its shares to raise capital which would negatively impact its share price.
