Nikola Buzz Warranted, Or Is Tesla A Better Bet?

by Trefis Team
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Nikola, (NASDAQ:NKLA), a company that designs and intends to produce electric semi-trucks, has seen its stock almost double to levels of around $65 since early June. This puts the market cap of the company, which went public earlier this month following a reverse merger with a publicly-traded special purpose acquisition entity, at about $23 billion – roughly in line with Ford, which sold over 5 million vehicles last year. Investors are betting on the increasing electrification of the trucking industry, as the U.S. Environmental Protection Agency finalizes regulations to slash emissions from heavy-duty trucks by a quarter starting from 2027. Below, we provide an overview of Nikola’s plans and compare it with Tesla (NASDAQ:TSLA), which also plans to deliver its own all-electric Semi truck in the near future.

For more details on the Class 8 truck market, and the market potential of Tesla’s Semi truck view our analysis Sizing Up The Potential Of Tesla’s Semi Truck

Nikola’s Fuel Cells Vs. Tesla’s Batteries

Nikola’s primary focus will be on its electric semi-trucks, which will use hydrogen fuel cells instead of batteries that are used in EVs, including Tesla’s upcoming Semi truck. However, Hydrogen fuel cell vehicles could have a couple of advantages, particularly in commercial applications. Firstly, they have shorter recharge times, similar to diesel trucks, which is helpful for commercial vehicles that can’t afford downtime at battery charging stations. Secondly, the range is also likely to be higher with Nikola indicating that its truck could have a range of 500 to 750 miles, compared to Tesla’s Semi, which has a maximum range of 500 miles.

Charging Infrastructure

While both Nikola and Tesla will need to do a lot of heavy lifting in terms of building recharging infrastructure for their trucks, we think Nikola’s focus on hydrogen cells could prove more expensive and complex. Unlike traditional EV recharging stations that supply electricity, Nikola’s refueling stations need to produce hydrogen, via a process of electrolysis.

Nikola’s Partner Driven Manufacturing Vs. Tesla’s Vertically Integrated Model  

Nikola has partnered with established industry manufacturers including equipment-maker CNH Industrial – that makes the IVECO-brand of trucks and German automotive supplier Robert Bosch. While the initial manufacturing of Nikola trucks will begin at CNH facilities in Europe, the company intends to eventually build out a factory in Arizona. This is in contrast with Tesla, which has built its own highly automated, vertically integrated manufacturing that should allow for lower costs and better efficiencies.

Early Customer Interest & Timeline For Deliveries

While Nikola’s hydrogen fuel-cell semi trucks are likely to begin deliveries only in 2023, the company will roll-out a battery-powered truck called Tre next year. Tesla’s Semi deliveries are likely to start around 2021 as well. While Nikola indicated that it has 14,000 orders for its semi trucks, these are unlikely to be binding, as there was no deposit money required. Around 2018, Tesla indicated that it had about 2,000 orders for its Semi, with a deposit.

Valuation

While there’s no objective way to value Nikola, given that it has yet to deliver a vehicle, the stock appears risky at its current valuation of $23 billion. Sure, its fuel cell technology appears quite promising and it also has plans to expand beyond the truck space, with a pick-up truck called the Badger, which will compete against Ford’s F-150, but the execution risks are high.

On the other hand, Tesla’s valuation has also more than doubled year-to-date to about $180 billion. However, Tesla should provide investors better downside protection considering its wider range of products (sedans, SUVs, as well as planned pickup and semis), its industry-leading tech, and software differentiation, as well as its fast-improving profitability.

Is this a good time to jump into Tesla stock? Yes – especially if you believe in this one important Tesla metric: Tesla’s time horizon. On the flip side, for a more balanced, risk-adjusted view see our analysis Tesla Valuation: Jump Into Tesla, Wait, Or Get Out? 

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