Can a hydrogen plant help Nikola’s share price rebound?

Nikola’s [NKLA] share price has continued to slow down since completing its SPAC merger on 4 June 2020. Shares in the electric truck maker had initially rallied 48.3% to $50.05 on 8 September last year, but since then, Nikola’s share price has dropped like a stone.

As of 1 July 2021, Nikola’s share price has fallen 74.2% in the last 52 weeks to close at $16.99. Despite this, Nikola’s share price is up 11.3% in the year-to-date and is trading 81.3% above its 52-week low of $9.37, which it dropped to during trading on 21 April.

Nikola’s share price has seen upward momentum since the beginning of June, gaining 16.9% throughout the month. Positive sentiment has been driven by the company being one of a handful of stocks added to the FTSE Russell 3000 Index as part of this year’s reconstitution. Others include powertrain technology firm Hyliion [HLYN] and fellow electric vehicle (EV) maker Lordstown Motors [RIDE].

  

New horizons

The headwinds that have impacted Nikola’s share price negatively in the last six to nine months are well documented. Indeed, the electric truck maker has been trying to turn its fortunes around ever since its founder Trevor Milton resigned last September. 

In June, the Arizona-based company announced it would be acquiring a 20% stake in a clean energy hydrogen project in Indiana for $50m. Work on the facility will begin next year, and the aim is to eventually provide Nikola’s trucks with fuel produced from hydrogen that has been separated from waste materials.

Up until now, Nikola has been focused on hydrogen infrastructure in and around the southwest of the US, where the company is headquartered.

  

In April, the company announced a partnership with TravelCenters of America [TA] to install two hydrogen fuelling stations for heavy-duty trucks in California. Nikola hopes these will pave the way for a nationwide network of fuelling stations. 

The stake in a clean energy plant located in the Midwest of the US could help Nikola to extend its hydrogen production ambitions beyond the southwest. 

Nikola is a firm believer that hydrogen fuel cells will drive the future of transport, especially haulage and trucking. Hydrogen fuel cells are preferred to lithium-ion batteries because of the former’s ability to deliver longer range, even when transporting heavy loads, according to Goldman Sachs Investment Research.

Nikola claims its fuel-cell semi-truck, which is planned to be released in 2024, will be able to go up to 900 miles without needing to be charged. However, lithium-ion batteries tend to offer a much lower range of between 200 and 300 miles. 

 

Clean revolution

Though hydrogen does have its opponents, including Tesla’s [TSLA] CEO Elon Musk, the clean energy revolution should continue to drive Nikola’s share price to new heights in the future — if and when the true potential of hydrogen fuel cells has been realised. 

In a note to clients seen by Benzinga in May, Gregory Lewis, an analyst at BTIG, argued that there’s long-term potential for hydrogen fuel networks to be a standalone business outside of Nikola’s core truck manufacturing. Lewis initiated his coverage of the stock with a buy rating and gave the Nikola share price a target of $18.

Not everyone is sold on the company. Wedbush analyst Dan Ives, a longtime Tesla bull, slashed his Nikola stock target by almost half in April — from $25 to $13 — though he maintained a neutral rating. 

“Overall, we still believe the company's EV and hydrogen fuel cell ambitions are hittable in the semi-truck market, although we still have clear concerns that the execution and timing of these ambitious goals stay on track over the coming years” - Wedbush analyst Dan Ives

 

“Overall, we still believe the company's EV and hydrogen fuel cell ambitions are hittable in the semi-truck market, although we still have clear concerns that the execution and timing of these ambitious goals stay on track over the coming years,” Ives wrote in a note to clients seen by MarketWatch. “Nikola is a story stock and 'prove me' name for now.”

He added that Nikola’s share price and the hype surrounding the company had dissipated ever since General Motors [GM] decided to pump the brakes on its plans to take an 11% stake in the electric truck maker last November. 

Perhaps, unsurprisingly, no ETF is heavy on Nikola, though it is held by several funds focused on clean energy and the future of mobility. The VanEck Vectors Low Carbon Energy ETF [SMOG], which had a 0.6% weighting in the stock as of 1 July, is down 2.5% in the year-to-date as of 1 July.

Meanwhile, the First Trust Nasdaq Transportation ETF [FTXR] and the SPDR S&P Kensho Smart Mobility ETF [HAIL] had weightings of 2.03% and 1.43%, respectively. The funds had gained 21.7% and 13.3% during the same period.