Nikola (NKLA) stock plunged over 24% to 75 cents in after-hours trading yesterday on news of nearing a bankruptcy filing. The Wall Street Journal first broke the news, citing sources familiar with the matter. The company is working with its law firm Pillsbury Winthrop Shaw Pittman to figure out restructuring or sale under Chapter 11 bankruptcy protection. NKLA stock has lost over 96% of its value in the past year owing to company-specific challenges.
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The discussions are still ongoing, and nothing is certain yet. Nikola could even consider financing as part of the financial restructuring, among other options. The Chapter 11 bankruptcy protection filing could protect Nikola from creditors in the event of a liquidity crisis, which seems imminent.
How Did Nikola Reach a Bankruptcy Stage?
Nikola entered the stock market with a splash. In fact, its market cap surpassed that of auto giant Ford’s (F) for a limited period. However, Nikola’s troubles started brewing soon after founder and CEO Trevor Milton was accused of misleading investors about the company’s technological progress. He resigned and was sentenced to four years imprisonment. This was followed by multiple CEO changes, a cash crunch, and issues with the hydrogen fuel cell technology.
The company was already struggling to raise more capital for months. Nikola undertook a slew of layoffs to curb expenses. It even sold up to $100 million of additional stock in December last year to boost liquidity.
Nikola’s problems became worse when its hydrogen-electric truck engines started catching fire in 2023, and the company had to stop deliveries. The company was already cash-strapped last year, when it sold 200 hydrogen-electric semi-trucks in the first nine months and said that it had cash to run operations only until April 2025.
Does Nikola Have a Future?
Under the current scenario, Nikola’s future seems very bleak. On TipRanks, only one analyst has rated Nikola stock in the past three months, giving it a Hold consensus rating. The analyst rating was given in November.
The average Nikola price target is $4, which implies 431.6% upside potential from current levels. The price target reflects a huge upside, given that NKLA stock has lost so much value. The absence of ratings since November reflects that even analysts are uncertain of Nikola’s future and prefer not to recommend the stock to investors.
