As the Nikola stock price rises, beware of a dead cat bounce

Nikola Motors (NASDAQ: NKLA) stock price rebounded sharply on Thursday as investors reacted to a bullish statement by Steve Girsky, the new CEO. The shares jumped by more than 30% and moved above the key resistance level at $1. Despite this rebound, the shares remain 70% below the highest level in August.

Still risky to invest in Nikola

Nikola Motors is a company that manufactures electric and hydrogen trucks. The company hopes to become a leading manufacturer in the United States. In a statement this week, the new CEO, Steve Girski, said that the company’s tests are going on well, with its hydrogen fuel truck traveling for 900 miles in a day.

Nikola Motors faces numerous challenges ahead. The biggest issue is that the company has spent billions of dollars in the past few years and is now running out of cash. It recently raised $125 million by selling senior convertible notes.

Each of these notes will accrue interest at a rate of 5.0% per annum. Holders of the notes could decide to convert them into shares if the stock bounces back.

The challenge is that Nikola needs more money than that. In his statement, Streve said that these funds will run it through the fuel cell launch in 2024. This means that Nikola investors can expect another dilution in the next few months.

At the same time, Nikola’s battery electric trucks are facing challenges, that forced it to issue a recall order. The firm attributed these challenges to a coolant leak. In all, this recall will consume parts of the company’s cash reserves.

I also believe that Nikola could struggle to sell these hydrogen fuel trucks in the near term. For one, this technology is unproven in the long term and these trucks are more expensive than diesel ones. Nikola only has 210 non-binding orders for these trucks.

Nikola stock price forecast

The daily chart shows that the Nikola share price has been in a strong bearish trend for a long time. It has dropped by more than 99% from the highest level on record. Most recently, the shares have dropped below the 50-day and 200-day moving averages while the Relative Strength Index (RSI) has moved slightly above the oversold level.

Therefore, I believe that the current rebound of the Nikola stock price is a dead cat bounce. As such, the shares will likely resume the bearish trend and retest the support at $0.5242, the lowest level in January. This price is ~53% below the current level.