Nikola (Nasdaq: NKLA) stock price has been in a strong freefall in the past few years, which has cost investors billions of dollars. The shares tumbled to a low of $0.8255 this month, which was the lowest level on record. In all, it has dropped by more than 90% from the all-time high.

Bankruptcy risks remain

Bankruptcy is the biggest risk that Nikola faces. The company, which is a cash incinerator, has been running out of cash for years. In its most recent financial report, the company said that it had $236 million in cash and short-term investments. That was much lower than the $820 million that it had in 2020.

As a result, the company decided to raise cash in March by selling $100 million shares. I believe that Nikola will also burn these funds in the coming months. Notably, with interest rates expected to remain at an elevated level, Nikola will have some liquidity challenges. As shown below, Nikola has been diluting its shareholders for years.

(Click on image to enlarge)

Its balance sheet shows that the company has over $289 million in long-term debt, up from $24 million in 2021. Its short-term debt stands at over $52 million. Notably, Nikola expects to continue spending millions of dollars this year. In its recent report, the firm estimates that it will spend between $500 million and $700 million this year.  

Nikola faces another huge challenge in building its hydrogen trucks. As we saw with Tesla, rolling out the charging ecosystem was an important part of their competitive advantage. Unfortunately, the infrastructure of hydrogen stations across the US does not exist. The same is true for electric charging for big trucks such as those Nikola is building.

Nikola is also facing significant competition in the BEV space from companies like Tesla, Daimler Trucks, and Volvo Trucks. Another red flag is the fact that Mark Russel, the company’s former CEO dumped most of his stake months before he announced his retirement.

Nikola stock price forecast

(Click on image to enlarge)

In a previous article, I warned that Mullen Automotive and Canoo will likely go bankrupt soon as the cost of operations rise. I suspect that the same situation will happen with Nikola as the recent fundraising will only buy it more time. 

On the daily chart, we see that the NKLA stock price has been in a strong downward trend. It remains below all moving averages. As such, with the shares being below $1, they seem to be relatively cheap. 

However, this can be a value trap, considering that the firm faces more challenges ahead. Therefore, I recommend avoiding the stock and focusing on more profitable companies.

More By This Author:

Canoo And Mullen Stocks Have Diverged: Are These EV Stocks Safe?
SPDR Regional Banking ETF Forms A Bearish Pattern Head Of Regional Banks Earnings
Wall Street Analysts Are Bullish On Moderna Stock Price: Should You Be?