A Bull Vs. Bear Debate On Nikola Following Milton's Resignation

The sell-off in Nikola Corporation NKLA 1.88% since the Hindenburg Research report accusing the company of being an “intricate fraud built on dozens of lies” took a breather on Friday. Investors must now decide if the fraud allegations and the departure of chairman Trevor Milton is a long-term buying opportunity or if the worst is yet to come for the stock.

The Bull Case: 

Earlier this week, Cowen analyst Jeffrey Osborne defended Nikola. Osborne said investors should understand that the optics of Milton’s departure are terrible for the stock in the near term, but the resignation will help minimize distractions in the longer term.

“We believe Steve Girsky at the helm of the Board and Mark Russell and Kim Brady controlling the communications and narrative from management will set a more measured and less promotional tone with investors,” Osborne wrote in a note.

Osborne said he has known the Nikola team for nearly three years and he doesn't believe the company is a fraud. However, investors should understand it will take the company some time to build back investor trust.

Osborne said Nikola’s partnership with General Motors Company GM 0.38% was a major milestone for the company, and Cowen is anticipating production of Nikola’s battery electric vehicles to begin in the fourth quarter of 2021.

The Bear Case:

Wedbush analyst Daniel Ives downgraded Nikola and said there are two reasons why risk for the stock is to the downside.

First, Milton was the visionary for the company, and his departure changes the story moving forward and leaves a visibility void that will be difficult to fill. Second, Ives said the battery cost projections from Tesla Inc TSLA 5.04% at this week’s battery day suggest hydrogen fuel cell vehicles could have a pricing problem in the long-term.

Ives believes GM will maintain its production partnership with Nikola and the company will begin delivering battery and fuel cell EVs in 2023. However, he said Nikola will likely face more bumps in the road between now and then.

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William K. 4 weeks ago Member's comment

Certainly this is an interesting drama unfolding. The claims and counter-claims are very serious, and so this is really not a "shades of gray" situation. Either the technology claimed does exist, or it does not.

The appearance looks to me like a case of the "Jim Moore syndrome", thinking that wanting something to be true will makes it be true. That seldom works in the real world. (Note that this is NOT the same Moore of "Moore's law" fame. )