Nikola (NASDAQ:NKLA), the startup electric vehicle (EV) company, has faced ongoing challenges in 2024, leading to a 12% decline in its penny stock value. Over the past three years, the company has lost nearly 95% of its value. Despite this, Nikola remains popular among some retail investors who view it as a potential multi-bagger, given its history as a former meme stock.

However, many analysts predict the company may be headed for bankruptcy. Several other startup green energy companies that went public through special purpose acquisition company (SPAC) mergers, including Arrival, Bird Global, Lordstown Motors, Electric Last Mile Solutions, and Proterra, have gone bankrupt in the last two years.

Nikola was among the early adopters of SPAC mergers in 2020. At its peak that year, Nikola’s market cap surpassed Ford Motor (NYSE:F), signaling a potential bubble in the EV industry, as Nikola had not yet begun delivering its vehicles.

The EV Bubble Burst in 2022

The bubble in EV stocks reached its peak in 2022, with Rivian’s market cap exceeding $150 billion and Tesla’s (NASDAQ:TSLA) market cap surpassing $1.2 trillion, higher than the combined market cap of all other leading automakers.

However, the sector’s fortunes changed in 2022 when the Federal Reserve implemented an aggressive rate-hike campaign, cutting off the easy money supply that had sustained many startup green energy companies with their significant cash burn and frequent need for cash infusions.

Nikola’s Challenges Go Beyond Macroeconomic Factors

While many startup EV companies blamed macroeconomic factors such as higher interest rates and a slowdown in the economy for their struggles, Nikola’s issues run deeper than the broader economic environment.

Shortly after its listing, Hindenburg Research accused Nikola of fraud and misrepresentation regarding its vehicle capabilities. Founder Trevor Milton resigned, and later, he was found guilty of fraud. Similarly, Hindenburg Research accused Lordstown Motors of fraud in 2021, and the company subsequently filed for bankruptcy due to its inability to raise sufficient funds for its cash-intensive operations.

Nikola Transforms, but Challenges Persist

Nikola has distanced itself from Milton and undergone significant changes. It sold its Badger pickup truck program, exited the European market, and now focuses on hydrogen fuel cell electric trucks and HYLA infrastructure solutions, primarily in California and Canada.

The company ended 2023 with $464.7 million in unrestricted cash, its highest level in two years. However, this cash accumulation has resulted in a significantly increased outstanding share count, with Nikola now having almost 1.16 billion outstanding shares, three times the amount at the time of its SPAC merger.

Despite efforts to reduce stock-based compensation, which totaled $75.4 million in 2023, Nikola’s C-suite has seen significant turnover, with four CEOs in as many years and a CFO who resigned after just six months.

Nikola’s 2025 Prospects

During Nikola’s Q4 2023 earnings call, CEO Steve Girsky expressed optimism about the company’s 2025 outlook. He highlighted the potential for a positive cash contribution margin on every truck if the company can increase vehicle selling prices and reduce production costs.

Girsky also stated that demand is not a constraint, and the company believes it can sell every truck it can build. Nikola aims to achieve positive EBITDA in 2025 and has ruled out any immediate need for further capital raises.

While Nikola may avoid bankruptcy for several quarters due to its capital raise and lower expected cash burn, the stock remains risky for those seeking multibagger returns. Despite its improved focus and market strategy, it is advisable to consider more established names in the startup green energy sector over Nikola.

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