On Thursday, Nikola (NKLA) stock tumbled after the automaker disclosed plans to raise capital through a $300.00 million share offering.
Nikola shares plunged by -23.39% to $0.75 apiece on December 07 amid rising investor dissatisfaction. However, market analysts anticipate a 1.33% recovery to $0.76 per share in the coming session.
In total, the price for the truck manufacturer’s stock has shed -31.82% from $1.10 apiece in the beginning of November. In recent months, the company has struggled to stay competitive with its battery-electric vehicles (BEVs) and hydrogen-powered trucks.
A share offering is frowned upon by investors because it normally leads to a drop in stock price. It increases the number of outstanding shares that leads to a dilution in ownership percentage.
The firm has consistently been in the red in earnings per share (EPS). It expects a negative EPS of -$0.13 for the fourth quarter, up 64.90% year-over-year.
Analysts estimate an EPS of -$0.78 in the current fiscal year and -$0.54 in the next one. Despite the anticipated loss, the forecasts point to annualized increases of 29.70% and 30.30%, respectively.
Stakeholders stuck with the company through years of losses, believing in the potential of hybrid vehicles. Unsurprisingly, they consider the sudden share offering a betrayal of investors who have persisted with Nikola all this time.
Share Offering to Fund Future Nikola Projects
Nikola’s share offering comes in two parts: $100.00 million in stock and $200.00 million in green convertible senior notes. The automaker will use the cash inflow to support its next batch of projects.
Moreover, Nikola needs the additional capital to ensure its hybrid trucks meet sustainability requirements set by the Department of Energy. In addition, the firm touted that it is developing several environmentally sustainable projects.
The firm’s working capital issues were exacerbated by the mass recall in August. It had to check all its battery-electric trucks after discovering a coolant leak issue that could lead to fires.
On a positive note, it continues to receive orders for the trucks even though repair of recalled vehicles remains unfinished.