Pre-merger surge drives Nikola value to $12 billion

Nikola One

Before building a single vehicle for sale, the valuation of fuel cell electric truck maker Nikola Corp. quadrupled to about $12 billion during a week of frenzied trading in shares of its merger partner.

Double-digit daily upward moves in VectoIQ, the NASDAQ-traded holding company that is acquiring Nikola in a reverse merger, sent VTIQ shares as high as $35.38 early on May 13 compared with a closing price of $14.12 on May 6.

Two events supercharged the share price.

On Friday, May 8, VectoIQ submitted a prospectus to the U.S. Securities and Exchange Commission (SEC), signifying that the commission had completed its review of the merger, which cleared the way for the deal announced March 3 to go forward.

On Monday, May 11, VectoIQ and Nikola set June 2 for shareholders to vote on the merger. Based on 403 million Nikola shares that will be available, a $30 price would make Nikola worth $12.09 billion, more than the value of CNH Industrial N.V., its largest investor.

Uncommon approach

Unlike an initial public offering (IPO) of stock in which banks set the price and sell shares to institutional investors before individuals can get in, Nikola is going public under a Special Purchase Acquisition Company (SPAC), essentially a shell company that has no other business.

SPAC investors typically look ahead to operations of the company it chooses to invest in. In this case it is Nikola, which plans to manufacture Class 8 battery electric and hydrogen-powered fuel cell trucks beginning with battery-powered trucks in Europe in 2021. 

VectorIQ invested $230 million in Nikola and will get 25 million shares of the company. It raised $525 million for Nikola through a private investment in public equity (PIPE) that allowed mutual funds and other investors to buy 50 million VectoIQ shares at a below market price of $10 each. PIPE investors can sell when shares are registered six to eight weeks after Nikola goes public.

Behind the run up

Several factors are behind the stock run up, people close to VectoIQ and Nikola said. Hedge fund investors who bet that VectoIQ shares would lose value are being forced to cover those positions by exercising warrants that allow them to buy VectoIQ shares at $11.50. Trading in those shares moves the market.

Message board posts and internet recommendations on Nikola from investor sites like Seeking Alpha and Motley Fool – and even the Chinese video-sharing social networking service TikTok – are boosting individual interest. 

A record of at least $12.2 billion flowed into funds that say they invest in environmental, social and governance practices, or ESG, in the first four months of 2020, The Wall Street Journal reported May 12. Nikola fits the environmental category.

Interest is rising in fuel cells as an alternative to diesel for long-haul trucking. Daimler AG and Volvo AB, the largest global heavy-duty truck makers, announced a joint venture April 21 under which they plan to work together to scale up fuel cells for trucking and other uses. 

Hyundai Motor is working with H2 Energy, and is providing 1,000 fuel cell electric trucks to the Swiss commercial vehicle market through to 2023. It is also working with Cummins Inc. (NYSE: CMI) on fuel cells for trucks and as backup systems for data centers in North America.

“In the heavy-duty market especially, there is increasing recognition that fuel cells are probably the right answer as an alternative to batteries,” said Sam Abuelsamid, principal analyst with Guidehouse Insights.

 “We’ve been looking at how the transportation market is going to shift in terms of the pandemic and commercial vehicles are going to do better than passenger vehicles,” he said. “The timing of when [Nikola is] planning to come to market is when companies are moving on to their next generation of trucks.”