Nikola's Stock Continues to Drop After Its Convertible-debt Offering

Nikola Corp. witnessed a fourth consecutive day of declining share prices on Friday, following the company's announcement of a convertible debt offering. The electric vehicle manufacturer, trading under the symbol NKLA (-3.08%), disclosed its intention to issue $40 million in senior notes with an interest rate of 5.0%, maturing on September 22, 2024. These notes will be convertible to common stock, cash, or a combination of both at any time, with the completion of the offering expected on Friday.

‍

In morning trading on Friday, the stock experienced a decline of 3.9%, marking a total loss of 21.4% over the four-day losing streak. This correction followed a remarkable 82.8% surge in the stock over the preceding three sessions. The surge was catalyzed by CEO Steve Girsky's announcement that the company would deliver its first hydrogen fuel cell trucks by the end of the month, coupled with the appointment of a Chief Operating Officer who previously served as a managing partner of the special-purpose acquisition company (SPAC) responsible for Nikola's initial public offering.

‍

The disclosure of convertible debt offerings often exerts downward pressure on a company's stock as shareholders express concerns over potential dilution of their ownership should the debt be converted into common shares. For Nikola, this offering addresses the pressing need for capital, as highlighted in the company's quarterly statement filed in August. In that statement, Nikola expressed "substantial doubt" regarding its ability to sustain operations over the next 12 months.

‍

Recognizing the critical role of capital access for an early-stage growth company like Nikola, the company acknowledged the necessity to secure additional capital until it could generate sufficient revenue to cover operating expenses, working capital, and capital expenditures. In the three months ending June 30, Nikola reported revenue of $15.4 million, down from $18.1 million during the same period the previous year. As of June 30, the company held $226.7 million in cash and cash equivalents, a slight increase from $225.9 million on December 31 but a significant decrease from $441.8 million a year earlier.

‍

Over the past three months, Nikola's stock has declined by 9.4%, with a year-to-date plunge of 42.1%. In contrast, the Global X Autonomous & Electric Vehicles ETF (DRIV) has recorded a 19.1% gain this year, while the S&P 500 index (SPX) has achieved a 13% increase.

‍