Nikola's Stock Falls as Ev Maker Looks to Raise Cash Through Convertible Debt

Nikola Corp. has announced plans to secure additional funding through a convertible-debt offering, a move aimed at expanding its electric-vehicle (EV) business. On Monday, the electric-truck maker revealed that it had reached an agreement with several investors to facilitate the sale of up to $160 million in convertible notes. The fundraising effort will begin with an initial closing that includes the sale of $80 million in convertible notes, which is projected to bring in approximately $74.3 million after accounting for expenses.

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Following this news, shares of Nikola (NKLA) saw a decline of more than 7% in early Monday trading, reflecting investor concerns about the company's financial strategy and overall outlook.

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Nikola, like many of its peers in the EV sector, is grappling with the significant capital requirements necessary to scale its business. The company reported a net loss of $133.7 million in its most recent quarter, underscoring the financial challenges it faces as it seeks to increase production and market presence. Despite these challenges, Nikola generated $31.3 million in revenue during the same period.

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In addition to its financial performance, Nikola disclosed that it wholesaled 72 hydrogen-fuel-cell vehicles in the second quarter. The company has also been supplementing its revenue by selling regulatory credits, a common practice among EV manufacturers to bolster their financials.

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The company's unrestricted cash reserves took a hit during the second quarter, declining by $89 million. By the end of the quarter, Nikola had approximately $256 million in unrestricted cash on hand. This reduction in cash reserves highlights the financial strain the company is under as it ramps up production and navigates the complexities of scaling its operations.

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Nikola's Chief Financial Officer, Tom Okray, provided further insight into the company's financial situation during the second-quarter earnings call. He explained that the decrease in unrestricted cash was primarily due to larger disbursements to suppliers as the company increased production volume, as well as an additional payroll period. However, these expenditures were partially offset by higher receipts resulting from increased volume and proceeds from at-the-market offerings, which totaled $52.2 million.

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In a separate announcement on Monday, Nikola revealed that it had secured a contract with Sourcewell, a cooperative purchasing organization. This contract is expected to simplify the process for public agencies to purchase Nikola's Class 8 zero-emission trucks, which are assembled in Arizona. The Sourcewell contract represents a significant opportunity for Nikola to expand its customer base and further penetrate the market for heavy-duty electric trucks.

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This series of developments reflects Nikola's ongoing efforts to secure the financial resources needed to scale its operations and achieve its long-term goals in the competitive EV market. While the convertible-debt offering provides a potential lifeline for the company, the significant financial challenges and operational hurdles ahead underscore the uncertainty that continues to surround Nikola's future.

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Investors and industry observers will be closely watching how Nikola navigates these challenges and whether the company's strategies will pay off in the form of increased market share and financial stability. As Nikola works to overcome its financial difficulties and expand its production capabilities, the company's ability to execute on its plans and deliver results will be critical in determining its long-term success in the rapidly evolving electric-vehicle industry.

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