Nikola Motors’ (NASDAQ: NKLA) meteoric rise sucked in an enormous amount of Robinhood investors, professional investors, and criticism. Many investors are in no man’s land as the future direction of Nikola remains uncertain. Some investors are championing the shorting route, while others believe in that Nikola Motors is just suffering a setback. Thus, today’s article will provide our readers with a simple explanation as to why Nikola fell so hard, why it is radically different from other EV makers, and whether YIG sees value.

Table of contents 
1. Why did Nikola fall so fast? 
2. Is NKLA similar or different from its competitors? 
3. Does YIG see any potential in NKLA?

Why Nikola fell 50% in two months

Nikola’s growth story is not clear cut. Some investors believe NKLA rose from $10 to $70, a 700% gain, in months. However, Nikola went public on the 3rd of June through the Special Purpose Acquisition Company (SPAC) Vector IQ. Thus, the rise from $10 to $37.55 was all under Vector IQ. The surge under the NKLA ticker, which was from $37.55 to $79.73, a 136% gain, lasting only five days.

NKLA’s meteoric rise was because of greed and FOMO. Investors who missed out on Tesla’s enormous growth wanted to make sure that when the next opportunity came by, they were ready. Nikola was their get rich ticket, or so it seemed. Extreme overvaluations on Nikola saw many retail investors flood the market. Nikola gained 100% in a few days, and many retail investors believed they finally made a lottery ticket investment. However, the nasty decline ever since June the 9th has left retail investors scratching their heads.

Nikola’s downfall

Explaining Nikola’s downfall is a much harder task, but we will keep it simple. Nikola plummeted for three reasons: big investors dumping their shares, investors lacking confidence in ex Ceo Trevor Milton, and the hype began to dry up.

First, the rapid expansion saw professional traders take their profits as the overvaluation was becoming unsustainable. The initial sell-off then triggered retail investors to sell under the fear of losing more money (loss-aversion). Second, investors began to lose faith that Trevor Martin, ex CEO, could steer the NKLA ship in the right direction. Especially after statements like this one, “90% of investors will probably never invest, we needed to touch the consumer. The pickup truck is for the consumer and the consumer is part of the Robinhood portfolio – which is where the valuation comes from” (Interview Trevor Milton and Jason Calacanis)

Considering the pickup truck is still two years away, investors are suspicious of whether Trevor was purposefully hyping up NKLA to increase his wallet. The lack of confidence saw Trevor step down from CEO. Lastly, NKLA’s vehicles are just ideas, meaning that Nikola has no products for the market. Ultimately, triggering a massive sell-off.

Here is how NKLA is different from its competitors

Nikola focuses on using hydrogen to run their motors as opposed to the all battery power route, which Tesla endorses. However, with a different fuel makeup, you need different charging stations. Nikola looks to build 700 hydrogen stations across the U.S. Because, at the moment, access to Hydrogen refuelling stations is limited. Compare, Nikola’s intention to build 700 stations to Tesla’s already built 1,870 Supercharger stations.

However, Nikola and its competitors’ most notable difference is that NKLA does not have any products for the market. Nikola is still searching for manufacturing partners. Compare that to Tesla’s semi, and Workhorses C650. Overall, NKLA is radically different from its competitors, as production is not guaranteed.

Does YIG see any investment potential in NKLA?

Before I begin I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research

Short answer: Using the liquidity to play short-term trades holds the most value but still has risk. (opinion not advice) 

Nikola will likely stay in the woodshed with the bears for a while. Potential supply chain disruptions, delays in the production of their hydrogen stations or trucks, and weak earnings will continue to discourage long-term investors from getting in. Because the fundamentals will not be attractive. Thus, investing in Nikola for the long-term may not be the smartest play.

However, investors are still trading Nikola in substantial volume, which is an advantage. Because the liquidity allows investors to get in and out of the trade seamlessly. Thus, short term trades that aim to profit or bullish outbursts hold the most potential. YIG would like to point out that day trading NKLA on quiet days is extremely dangerous.

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post a new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below? 

Written by Patrick McLoughlin, Senior Manager of YIG.