Nikola stock is crashing, and founder Trevor Milton claims he knows why. Don't believe him - or the company's unrealistic projections.
Nikola stock (NASDAQ: NKLA) is crashing, and executive chairman Trevor Milton claims he knows the reason why: A whale did it.
According to Milton, the whale – a nickname for deep-pocketed traders who use their heft to manipulate market pricing – moved $75 million worth of NKLA shares in one trade.
Someone moved 1.5 million shares today in one trade, ~ $75,000,000 on top of all other trades.
It wasn’t the overall market that dragged us down or herd mentality. It was carelessness and greed of one person doing it all at once without regard of others.
Milton deleted the tweets shortly after posting them, but not before other users grabbed screenshots.
Milton’s visible alarm about the company’s share price comes as the stock – once the darling of Robinhood – hurtles back to earth.
When Nikola began trading as a public company last month, its stock price debuted at $37.55. Days later, it closed at $79.73 after surging to an intraday high of $93.99.
Milton’s now-deleted Twitter rant coincides with a sharp reversal for NKLA shares. After a 14.5% plunge on Monday, Nikola stock teeters nearly 40% off its record close.
Contrast that with how other “green” carmakers have fared during the same period. Tesla (NASDAQ: TSLA) has jumped by over 40% in about a month, while Nio Inc (NYSE: NIO) has surged by 95%.
Smaller industry players Workhorse Group Inc (NASDAQ: WKHS) and Plug Power Inc (NASDAQ: PLUG) have rallied approximately 480% and 90%, respectively.
While Milton’s accusations may have some merit, his implication – that the decline is a temporary outlier – doesn’t.
Here are three reasons it’s incredibly unlikely that Nikola’s plunge is over – and why investors need to brace for a bumpy ride.
After opening preorders for the Nikola Badger truck, Milton was initially ambiguous about the reservation figures. Then he revealed that the company was averaging 1,500 deposits per day while expecting (future) revenues of around $200 million per day.
This is insanely unrealistic. There are no guarantees that reservations will translate to sales. In Nikola’s case, the chances of cancellations are exceptionally high because consumers placed reservations based on computer renderings, not an actual vehicle prototype.
Additionally, the pace of reservations should tail off dramatically. That’s what happened to Tesla’s Cybertruck, which attracted 250,000 reservations in just five days last November.
Seven months later, Tesla bull Dan Ives said preorders had climbed to 650,000. While impressive, that demonstrates how unrealistic it is to expect Nikola to continue recording 1,500 orders a day.
Nikola’s stock faces enormous selling pressure from increased supply. According to an SEC filing from June, Nikola’s share float could balloon by nearly 24 million shares once warrants are exercised.
Those outstanding warrants became exercisable on July 3. They could begin flooding the market with new shares once they’re registered with the SEC.
Diluting shareholders will inevitably put pressure on the stock price. No amount of social media pushback by the company’s founder will change that.
Of all the wars Milton has waged on Twitter, the most spirited ones have been against Nikola bears. Once the stock began to crater, Milton started to sound more like a stockbroker than a visionary auto industry executive.
This month alone, Milton has twice accused Nikola critics of manipulating the stock. Last Friday – when the market was closed for the Independence Day holiday – he ranted that “hired hands” were trying to “stoke fear” by spreading pessimistic tweets.
The following day, Milton urged followers to leave a Facebook page for Nikola shareholders because it was generating negative sentiment.
Milton’s tweet blaming whales for Monday’s plunge is the latest evidence that management is extraordinarily obsessed with Nikola’s stock price.
This fixation should raise red flags for investors.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.
Last modified: September 23, 2020 2:03 PM