Nikola stock price forecast: extremely vulnerable ahead of July 5

Nikola Motors (NASDAQ: NKLA) stock price has suffered a harsh reversal as investors continue worrying about more dilution. After surging to a multi-month high of $1.83 on June 15th, the stock has retreated by almost 40% to about $1. 

Significant challenges remain

Nikola Motors has been one of the most heavily traded companies this month. At its highest point, the stock was up by more than 246% from the lowest level this month. This rally happened as the company struggled to adjust its outstanding shares in the company.

Like other electric vehicle companies, Nikola is seeing weak demand and tight liquidity conditions as interest rates rise. With its cash reserves running out, the management decided to adjust the number of outstanding shares. By doing that, the company would then have an easier path raising capital by diluting shareholders.

The management failed to raise the required votes in the first voting session after Trevor Milton, the company’s largest shareholder voted against it. He is now lobbying other shareholders to vote against the measure in July. Instead, he has recommended ousting the management.

There is no clear path ahead for Nikola, which makes it highly risky to invest in the company. If the vote fails, it means that the company’s access to liquidity will be highly imperiled. While the total liquidity stands at over $796 million, most of these funds depend on the passing of Proposal 2. 

On the other hand, if the vote passes, it will lead to more dilution for investors. Nikola has a good record of diluting shareholders. Its outstanding shares jumped to over 475 million from just 13 million in 2018.

Therefore, Nikola is in deep trouble considering it needs billions of dollars in the next few years as it shifts to hydrogen vehicles. While hydrogen has better features, it requires huge investments, as I noted in my recent article on Plug Power.

Nikola Motors stock price forecast

NKLA chart by TradingView

I recently wrote that it was extremely dangerous to short Nikola stock. This view was perfect since the stock then jumped by more than 200%. Shorting at that level would have led to a major short squeeze. 

Now, however, the stock has lost momentum and there are signs that buyers have started exiting as shown by the volume indicator. The stock has moved below the 25-day and 50-day moving averages. Therefore, I suspect that the shares will continue falling in the coming weeks as investors wait for its annual meeting set for July 6th. The deadline for Proposal 2 vote will be on July 5th.