Someone wrote a stupid article recommending Nikola stock, so here’s my response. On one hand I feel like I probably shouldn’t be wasting my time on this, but on the other hand somebody’s gotta do it.

Here’s the title of the article:

Don’t Bet Against Innovation and Nikola Motors

Nikola stock will ride innovation to prove skeptics wrong in the quest for zero-emission shipping

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We’re really going to start by connecting Nikola Motors and Innovation with the word “and”? That’s already a stretch. Nikola’s primary innovation, if any, is its business model –– not some kind of breakthrough new technology that might typically be called an “innovation” in the Silicon Valley sense.

Well that didn’t take long. In just three months as a public company, upstart next-gen commercial truck maker Nikola (NASDAQ:NKLA) replaced Tesla (NASDAQ:TSLA) as the market’s biggest battleground stock, with bears and bulls both digging in their heels on Nikola stock.

The bulls think Nikola projects as the Tesla of the commercial trucking space, and that the transportation electrification megatrend will turn Nikola into a global trucking powerhouse. The bears, meanwhile, see Nikola as an unproven, highly speculative company with tons of execution risks, none of which they believe are factored into the NKLA stock price today.

Spoiler alert: The bulls are right.

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Spoiler alert: the bulls are morons.

Although Nikola may try and associate itself with Tesla at every possible opportunity –– from the name of the company itself to Trevor Milton’s trash-talking, to claims it has now “replaced Tesla” as the top battleground stock –– Nikola is nothing like Tesla. Nikola is a bizarro world alternate universe anti-Tesla. It’s a flaming pile of shit. If the company had any value on its own merits, there would be no need to constantly try and ride Tesla’s coattails to success. The company would not be called Nikola.

Why?

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Yes, please tell me why.

Because innovation always wins, and Nikola is one of the most innovative, forward-thinking companies on the planet.

Plus, all that innovation is supported by big strategic and manufacturing partnerships, a huge pre-order book, a balance sheet flush with capital and an engineering team beaming with talent – the sum of which mitigates execution risks and lends visibility to Nikola turning today’s breakthroughs, into tomorrow’s profits.

In other words, Nikola really is Tesla 2.0, and NKLA stock really is a strong buy for long-term investors. Here’s a deeper look.

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Please give me your crack dealer’s phone number, because I’d like to try what you’re smoking.

First of all, innovation does not always win. Remember Segway? The Newton? Waymo? It’s not enough to innovate. To win, you need to be able to move product. Sell real things, to real customers. That is true innovation: “Real artists ship”.

All Nikola’s “innovation” is done by partners. It is the partners who are doing the innovating, own the intellectual property and are owed royalties on every Nikola truck sold. If you believe in hydrogen innovation, go invest in Nikola’s suppliers.

There is no huge pre-order book: If Nikola fails to deliver, the customers have no obligation to complete their purchase. Most of these customers have paid $0 down on these orders. It’s more of a “Sure, if you can really do this we’ll be a customer” sort of deal.

The balance sheet is not flush with capital. The $900 million in cash Nikola raised is enough to build 45 hydrogen filling stations. Nikola has promised to build 1200. Forget about fixed expenses, salaries, all that… as far as production goes what Nikola has raised will barely buy them a pot to piss in. Trevor is already talking about heading back to capital markets to sell more equity to poor retail suckers looking to get rich on “the next Tesla 2.0”.

I’ve seen very little evidence that Nikola has assembled an engineering team “beaming with talent”. It seems like most of the major engineering work is outsourced, with only a few Nikola engineers to glue the pieces together with some ugly software.

As a multiple of forward earnings, Nikola stock is actually more expensive than Tesla. Sadly, many investors wishing they bought some Tesla before it “went up so much” will end up investing in this turd of a company thinking “it’s still low”. Yes, the share price may be less but relative to fundamentals its a lot more expensive.

Nikola is a sell. Don’t touch it with a ten foot poll.

Don’t Bet Against Innovation

One thing I’ve learned in markets is that a bet against innovation is often a losing bet.

And, at this point in time, a bet against Nikola stock is a bet against innovation, mostly because it conceptually stands as a bet against the idea that commercial trucking fleets all across the globe will be electrified over the next 10-plus years.

Make no mistake about it. That’s exactly what will happen.

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All semi trucks will be electric, yes. Is it possible Nikola could take a bite out of a market enjoying fast secular growth? Yes.

But is it likely they will emerge as a dominant player? No, it’s extremely unlikely. That doesn’t mean it can’t happen –– it’s just extremely unlikely to, just like Tesla’s success was unlikely. Besides the fact that they’ve never sold a single truck before, if their products are successful they would quickly be undercut and commoditized by many other players who could simply purchase the very same parts Nikola used in their trucks from the very same (or better) suppliers, without paying royalties.

In the auto vertical, Nikola is king, because of innovation.

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Right, because of innovation. Of course!

I’m talking heavy duty commercial trucks with industry-leading driving range and industry-best recharging times.

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The battery-electric trucks Nikola will be selling for the next four years will not have industry-leading range and charge times. Their hydrogen offerings require prohibitively expensive infrastructure investment that will greatly reduce where the trucks can be used. You’ll have to pre-purchase a route, and then only drive on that one route where Nikola will build a hydrogen station for you to use.

Who wants a truck or a car that can only drive on one road?

Trucks that are built on premium software that is autonomous ready.

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The software is complete dog shit, and the idea that trucks are “autonomous ready” is complete bull shit.

In other words, Nikola really is the trucking company of the future.

Betting against that feels like a bet against innovation, and that’s a bet that probably won’t win in the long run.

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I’ll take that bet. In my view, it’s not a bet about innovation at all.

Another thing to like about the Nikola growth narrative is the fact that the company’s trucks have such a clear value prop, that once the company ramps up production, commercial fleet adoption should be relatively seamless and happen very quickly.

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Yes, as soon as they ramp production I’m sure everyone will definitely buy their trucks. The Nikola Tre battery electric truck is currently being assembled by hand. As of today, they haven’t finished building a single truck, and once they do they’re likely to discover many issues. And this is the easy part: Nikola Tre is just an Iveco S-Way Diesel truck with a Nikola logo slapped on the front, and an electric powertrain. Bringing their hydrogen products to market will be an order of magnitude harder and there’s a strong case to be made that it will never happen.

Nikola’s hydrogen-electric trucks are zero-emission. They have lower and more predictable unit costs. They have nearly equal hauling capacity. And, they have reached parity with diesel trucks in terms of driving range and recharging time.

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Almost all hydrogen produced today is made from fossil fuels. Hydrogen costs the equivalent of $16 per gallon of diesel fuel. There is virtually zero hydrogen fueling infrastructure for trucks anywhere on Earth.

In other words, with Nikola’s next-gen trucks, commercial trucking fleets will be gaining a whole lot, without losing anything.

That value prop is as clear as day.

And because it as clear as day, widespread adoption of Nikola’s next-gen vehicles – once the company mass produces them – could be very, very quick.

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Yes, I’m sure they will produce the world’s most amazing trucks on their first try and reviews will be glowing. It will be much better than the Tesla Semi and everything else out there. Why wouldn’t it be? Innovation! Trevor Milton!

Strong Fundamentals

Of course, despite the aforementioned positives, NKLA stock bears will continue to hang their hat on the fact that Nikola hasn’t sold a single one of these next-gen trucks, and that accordingly, the growth narrative has huge execution risks.

But it doesn’t really.

Sure, Nikola hasn’t sold a single next-gen heavy duty truck yet. But the company has a long list of strategic investment and manufacturing partners which, in it of itself, lends credibility to this company’s engineering prowess and ability to scale production.

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Strong fundamentals? Is this a joke?

Oh yeah, great fundamentals just one minor detail though… they haven’t sold a single product ever since the company was created. The price over sales is infinity. In their first quarter as a public company, the only customer the company had was Nikola Founder & Chairman Trevor Milton buying solar panels for his house. I’m not kidding. Nikola doesn’t even make solar panels, they just bought them from Hanwha and sold them to Trevor. You can’t make this shit up.

In other words, Nikola hasn’t sold a single vehicle yet, but they have the partners, the customers, the resources, the talent and the energy to sell tens of thousands of trucks per year at scale.

That’s exactly what the company will do.

If (when) they do, NKLA stock will be worth a whole lot more than $45.

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At $45, the expectation of Nikola selling tens of thousands of trucks per year is already priced in. In other words, they better sell a ton of trucks, or the stonk is going to shit its pants.

NKLA to $200?

By my numbers, NKLA stock could soar to nearly $200 over the next decade.

Here are those numbers.

This would make Nikola one of the most valuable automakers on Earth.

Each year, commercial fleet companies buy around 2.7 million heavy-duty and manufacturing commercial trucks globally. Within the next decade, I see around 1 in every 3 of those truck sales being a zero-emission truck, for a total of roughly 900,000 hydrogen-electric commercial trucks sold in 2030.

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I’m very confident that by 2030 battery technology will have advanced to the point where there will be 0 need for hydrogen trucks. Assuming that all zero-emissions trucks will be powered by hydrogen is the first huge error in these calculations. The vast majority if not all will be full battery-electric models that grow cheaper and more capable as battery technology continues to evolve.

Nikola projects to be the Tesla of this space. In the passenger car market, Tesla has consistently controlled between 10% and 15% of the EV vertical. Assuming similar market share for Nikola at scale, that translates to over 110,000 truck sales in 2030.

Average sales price tag on those trucks will be about $250,000, for total truck revenue of about $28 billion.

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Just because Elizabeth Holmes put on a black turtle neck doesn’t mean she’s Steve Jobs. And just because this turd of a company calls itself Nikola, doesn’t mean it’s “the next Tesla”.

Tesla is a once in a generation jaw-droppingly unlikely success story. Now that Tesla made it look easy, everyone expects Nikola to just casually do the same in trucking. Are we forgetting that Nikola’s trucks will be competing against… the actual real Tesla? Assuming Nikola trucks will swallow the same market share as Tesla’s passenger vehicles is completely nonsensical. There is no logical justification for such an arbitrary assumption.

The hydrogen and services business will simultaneously ramp as Nikola builds out a robust network of hydrogen charging stations. I think that business grows to about $6 billion in revenue by the end of the decade, implying total revenues of $34 billion.

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When Hanwha invested $50 million in Nikola in 2018, they put a clause in the contract that gave them the right of first refusal on operating any and all Nikola hydrogen stations.

Hanwha will produce the power with solar and store it in batteries. Hanwha will produce the hydrogen. And Hanwha will operate the station. As far as I can tell, Nikola will be on the hook for paying to build each station at a cost of at least $20 million each. Assuming this is a profitable business (it won’t be) most of the profits will go to Nikola’s partners and suppliers –– not Nikola itself. Nikola’s contracts with suppliers tend to have hilariously bad terms, I’ve found.

My modeling suggests that under those assumptions ($34 billion in revenue/18% operating margins), Nikola could hit $10 in earnings per share by 2030.

Based on a 20-times forward multiple, that implies a 2029 price target for NKLA stock of $200.

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Do not invest in Nikola, and tell everyone you know to stay away. I very well could be wrong, but I don’t think hydrogen fuel has a future in transportation.