Nikola stock price short squeeze: get out when you can

Nikola (NASDAQ: NKLA) stock price surged by more than 60% on Thursday as investors cheered a big order for the company’s hydrogen trucks. The shares popped to a high of $2.28 in the regular session and to $2.68 in the extended hours.

Nikola big order

Nikola is a company that is building battery electric and hydrogen trucks. While the company is already selling its BEV trucks, its management has decided to pivot it to the hydrogen sector. They believe that hydrogen trucks have a better utility than battery electric ones.

In a statement on Thursday, Nikola announced that it had received a big order of 50 hydrogen trucks from BayoTech. BayoTech is an American company in the hydrogen supply industry. It offers hydrogen production, storage, and transportation services.

Nikola will start delivering these trucks later this year, with the final one expected to be delivered in 2028. Nikola, on the other hand, will buy 10 BayoTech Hyfill system. It is unclear how much Nikola is charging the company per truck.

Another good news is that the company recently received a $41 million grant to build hydrogen fuel stations.

Despite the good news, Nikola is a company under pressure. For one, its cash balances are running out and it is unclear how the company will finance its operations. The company ended last quarter with $122 million in cash, down from the previous $216 million. 

Therefore, with its stock surging, now would be a good time for the company to raise cash by issuing new stock. However, the management has failed to convince its shareholders to authorize more dilution. The company then extended this period to August 1st oft this year. 

Is it safe to buy Nikola stock?

As I wrote here, Nikola has no good option in terms of financing since the cash burn will continue for a while. At the same time, liquidity remains thin in the market, meaning that raising debt will not be easy. 

Also, without the share issuance approval, it means that the company will not able to take advantage of the current short squeeze to issue shares. An approval of these share issuances will lead to more dilution.

The other big risk for the Nikola stock price is demand. Its battery-electric truck costs over $300k, making it more than double the price of a similar diesel truck. I think the hydrogen fuel cell truck will be more expensive for many companies to buy. Therefore, the Nikola stock price is still highly risky for now. The company is facing balance sheet challenges as well as demand issues. Remember, in my last article, I warned that the Nikola share price would surge amid FOMO.