Nikola stock forecast after the Plug Power warning on hydrogen

Nikola (NASDAQ: NKLA) stock price continued its freefall this week as investors reflected on the company’s earnings and the recent strategy change. It has crashed back to $1 per share, over 74% from the highest point in August this year. This plunge has brought the company’s market cap to $995 million.

Hydrogen concerns remain

Nikola is a truck manufacturing company that aims to become the biggest player in the hydrogen industry. In a statement this month, the company made several important announcements. 

The most important one was its pivot towards California, the biggest state in the United States. The management believes that the state is best suited for this technology, thanks to the many incentives by the state government. 

For example, the government is offering up to $408k incentives for customers buying hydrogen trucks. At the same time, the government has ordered that all new trucks registered for port and drayage services be zero emissions. Therefore, it hopes to have a first-mover advantage in the industry.

However, Nikola faces a mountain of challenges ahead. The biggest issue is that I suspect that it will need to raise capital soon. In the last quarter, it raised $250 million from investors by selling shares. 

It ended the quarter with $705 million of cash and stock that it can sell. The management believes that its cash balance can last it into 2024. This means that it will ultimately seek more financing in 2024. The CFO said:

“We have previously indicated we will need to raise approximately $600 million to fund their business to EBITDA positive by the end of 2025. This long-term thinking to fund the truck business remains the same.”

Plug Power warning on hydrogen energy

The other challenge is that Nikola’s fuel cell trucks are a new concept. Making things worse is the fact that hydrogen infrastructure is not up to standard. A good example of this is Plug Power (NASDAQ: PLUG), a leading company in the hydrogen industry. 

In its results, the company warned that supply for hydrogen was under strain because of down plants across the entire system. As a result, the cost of hydrogen at the pump more than doubled to $30 per kilogram. This makes it quite unsustainable for truckers. The CEO said:

“For many days, demand outstripped supply. For example, many of the California fueling stations have been without fuel or had limited fuel on a regular basis over the past several months. Additionally, the price of these stations for hydrogen has been over $30 per kilogram at the pump.”

The challenge is that these news events will make it difficult for companies to consider fuel cell trucks. Besides, these trucks are extremely expensive than those running on diesel. It is estimated that each of these trucks is going for as much as $750k. 

Even after incentives, these trucks will be more expensive than those made by companies like Scania, Daimler Trucks, and Paccar. Also, operating them is quite expensive since the hydrogen infrastructure is not all that developed.

What next for Nikola stock price?

NKLA chart by TradingView

So, in this case, what next for the Nikola share price? I believe that the company’s challenges outweigh the potential opportunity. With Nikola, we have a company that is burning millions of dollars and one that is in a new and untested industry.

Further, we have a company that will rely on government incentives to fund its incentives. And as we have seen with firms like Rivian and Lucid, manufacturing is a highly expensive process. The two companies have burned billions since they started vehicle manufacturing and delivery.

Nikola stock price technicals are also not supportive. The shares have crashed below all moving averages and its attempts to recover have found resistance at $1.70. Therefore, the outlook for the shares is bearish, with the initial support level being at $0.8155, the lowest point in October. A drop below that level will see it crash to the key support at $0.5262, the lowest point in June 2022. This view is in line with what I warned in my recent article.

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