Tesla Rival Nikola Draws the Attention of a Short Seller

Nikola Motor Company (NMC) said last week that it had secured $1 billion financing, including a new round of $500 million equity financing and $600 million in debt from Deutsche Bank. The financing will help fund a manufacturing plant in West Virginia that will open in 2021, the latest attempt by Nikola to bring a mass-market EV to market.

Nikola was founded in 2001 to take on Tesla in the EV space, only to stagnate as some investors lost interest. The company shut down the business for five years in 2011 due to a lack of capital, but was rebooted in 2017, and started producing cars again in mid-2018.

Nikola’s success hinges on its V60, a four-door SUV designed to compete with Tesla’s Model S and Model X. As Tesla faces criticism over safety issues and as its stock has fallen more than 10% in the past six months, more investors appear to be turning to Nikola, raising its value to nearly $6 billion.

Komal Mathur, a stock analyst with MarketSmith, says Nikola’s global expansion and investment in new technology makes it a prime target for short sellers. “We do see them expanding,” Mathur says. “They have a lot of money now, they have brand recognition, and they are bringing a more affordable model to market.”

The V60 is small for a Tesla and is about the same price point. Mathur says she’s bullish on the stock and believes it can have a “substantial run.” But she says it is a risky play. “They have been shorted quite a bit,” Mathur says.

One factor at play is that there is a limited supply of potential buyers for Nikola’s EVs. The V60 was unveiled with a conservative sales target of 100,000 units in 2021. In the first-quarter of this year, Tesla sold 54,540 EVs, mostly through large fleet-type buyers like hotel chains and rental car agencies. By comparison, other car makers only sold 118,158 EVs in the same period. Nikola will be starting at zero with its EV production.

The price of self-driving technology will eventually become competitive with the cost of components, meaning the cost of the lithium-ion batteries will come down as many other components will go down over time. But Musk and Tesla have promised Model 3 production deadlines that have been missed, and glitches in the software have slowed adoption. With investors calling for Tesla to scale back its R&D in light of its financial losses, Tesla could be vulnerable to secondary attacks from shorts.

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