Nikola
stock investors are unloading shares, but it isn’t clear why they’re selling.
Shares of the battery and hydrogen fuel-cell trucking company are off 4% in early trading, at 53 cents a share. The stock hit a new 52-week intraday low earlier in the day while the
S&P 500
and
Nasdaq Composite
are both up a little.
There isn’t much news to pin the declines on. Nikola didn’t immediately respond to a request for comment.
In terms of recent events, Nikola (ticker: NKLA) shareholders just voted on a proposal to increase the number of shares outstanding. Companies, in their bylaws, often have a maximum they are allowed to issue. The outcome isn’t known yet,
Nikola eventually will need more stock because it needs more capital for its business, and was bumping up against its limit. Nikola ended the first quarter with about $200 million in cash on its books and access to about $800 million in capital, including its cash balances. Wall Street expects the company to use about $150 million a quarter and doesn’t project positive free cash flow until 2027.
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What’s more, Nikola might also be able to solve its share problem by doing a reverse stock split, which reduces the number of shares outstanding, and increasing the price of each share.
A reverse split would solve another problem for the company. Nikola stock has been trading at below $1 for more than 30 days, violating a Nasdaq Stock Market rule. The company has about six months to correct the situation.
A reverse split, however, also requires a vote by Nikola shareholders. So perhaps a pocket-change share price and another vote might be generating more investor uneasiness.
A vote for a reverse split isn’t always required, says accounting expert Robert Willens. “In most jurisdictions, in fact, the split can be implemented by means of a board of directors’ resolution, without the need for any sort of shareholder vote.”
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Whatever the reason for Tuesday’s decline, it has been a steep descent down the mountain for Nikola stock. Shares peaked at almost $94 in June 2020, shortly after the company closed its merger with a special-purpose acquisition company, or SPAC. Shares surged about 170% in the three days following the closing.
Those eye-popping gains partly helped fuel the boom in SPAC mergers. About 60 SPACs raised money in 2019. That number grew to 248 in 2020 and 613 in 2021. The number for 2022 was 84 and 10 SPACs have raised money so far in 2023.
Nikola founder Trevor Milton voiced opposition in June 2022 to raising the cap on the number of shares outstanding. He had left Nikola by then, having resigned in September 2020, but continued to hold a significant amount of stock as of April 10 of this year. Milton can still vote, too, even though he was convicted of securities fraud in October 2022 for statements he made about the development of Nikola’s zero-emission truck technology.
Write to Al Root at [email protected]
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