Nikola stock price is in a deep dive: How low can it go?

Nikola (NASDAQ: NKLA) stock price came under heavy selling pressure on Monday as the company’s challenges rose. The shares plunged to a low of $1.62, the lowest level since July 13th. It has plunged by more than 53% from the highest level this year.

Nikola EV recall

Vehicle recalls are some of the biggest challenges in the automobile industry. In the past few years, many companies like Rivian, Tesla, General Motors, and Ford have been forced to recall some of their popular brands.

Automakers usually price in recall risks in their business operations. And over the years, these companies have managed the recalls well, thanks to their strong balance sheet. For example, Rivian had over $10 billion in cash in its last recall.

Recalls can hurt many undercapitalized EV companies and Rivian is a good example of this. In a statement, Rivian announced that it was recalling 209 battery electric vehicles (BEV) to repair a flaw in its battery pack. It is unclear how much money Nikola will need to spend to deal with this crisis.

The challenge for the company is that is running low on cash. Earlier this month, Nikola said that its unrestricted cash position came in at $107 million even as its cash burn improved gradually. Its cash burn was $148 million during the quarter. 

This cash burn is significantly lower than what the company expects to make in Q3. In its guidance, the company said that its revenue will be between $18 million and $28 million. It expects that its operating expenses will be between $90M and $100M.

Therefore, the company will need to raise capital either through debt or equity sale. As I wrote before, the company is struggling to authorize new shares.

Nikola stock price forecast

The daily chart shows that the NKLA stock price has been in a strong bearish trend in the past few days. It has moved slightly below the important support at $2.98, the highest point in January.

Nikola shares have also crossed the 50-day and 100-day moving averages. At the same time, the two lines of the MACD have formed a bearish crossover. The Relative Strength Index (RSI) has drifted downwards.

Therefore, the shares will likely continue falling as sellers target the key support level at $0.6055, the lowest level in June. The alternative scenario is where the price rebounds and retests the key resistance level at $2.98.