Why Nikola stock price plummeted more than 25% this week

Stocks of hydrogen and battery-electric truck manufacturers Nicola (NKLA -8.42%) It plummeted this week, trading down 29% as of 11:30 a.m. ET. Friday, according to data provided by S&P Global Market Intelligence.

Electric vehicle (EV) stocks barely crossed the $1 mark earlier this month, but are currently trading at around $0.76 per share as of this writing. Nikola has continued to raise funds by investing in stocks and convertible bonds over the past few years. Much to the chagrin of investors, the company is doing it again.

Cash problems continue to plague Nicola

Nikola this week said it would issue $100 million worth of stock and raise an additional $200 million through convertible senior notes. While a stock sale essentially dilutes the wealth of existing shareholders because their stake in the company falls, convertible senior notes are a double whammy. This is because senior convertible bonds are a type of convertible bond that allows holders to convert their bonds into Nikola stock. That would further dilute the wealth of existing Nikola shareholders.

Why does Nikola issue stocks and bonds so often? The company is struggling with cash shortages even as it builds trucks and fulfills orders. Nikola will use the funds raised from recent stock and bond offerings for working capital and other corporate needs.

Can Nikola fulfill hydrogen truck orders?

Nikola announced its third quarter results last November, and although it received more orders, its losses were also greater. As of November 2, Nikola had received 277 non-binding orders from 35 customers for its Tre hydrogen fuel cell electric truck, but building them all will be expensive.

Nikola also produces battery electric vehicles (BEVs), but those plans fell through last August after the company voluntarily recalled 209 of its heavy-duty Tre BEV trucks due to defective battery packs and temporarily halted sales of new BEVs. Nikola now plans to replace the pack and begin BEV deliveries again in early 2024, but the recall and repairs will also cost nearly $62 million.

This is quite expensive for a company that is already knee-deep in losses. In fact, Nikola negative BEV sold only three units but repurchased seven units after canceling some dealer contracts, resulting in total revenue of $1.7 million in the third quarter. Net loss widened from approximately $236 million in the third quarter of 2022 to $425.8 million this quarter.

In short, Nikola may be taking truck orders, but it’s currently in a difficult financial situation, and this week it gave investors yet another reason to sell stock.