NKLA

Why Nikola Shares Charged Higher This Week

There are good macroeconomic reasons to explain why shares of Nikola (NASDAQ: NKLA) rallied this week. Shares, in fact, are 17.5% higher early Friday morning compared to where they closed last Friday, according to data provided by S&P Global Market Intelligence.

Macro tailwinds this week included lower Treasury bond yields and the Federal Reserve's stance on interest rates. But there were also company-specific catalysts that likely had investors feeling more optimistic about the electric heavy truck maker's prospects.

Pivotal third-quarter period

It may turn out that the third-quarter period that Nikola just reported will be looked at as a pivotal time for the electric vehicle (EV) start-up. Nikola just started producing its hydrogen fuel cell electric trucks. The company is leaning away from the battery electric semis that it has been selling for almost the last two years and moving toward the hydrogen-powered trucks.

In the quarterly report, Nikola clarified the uncertainty around what it will cost for it to rectify a battery safety issue that forced it to recall about 200 of those battery electric trucks. While the approximately $62 million expense is not good news for investors, it does put to rest an unknown and allows Nikola to move forward with the hydrogen-fueled models.

Nikola said it now has 277 orders from 35 different customers for the hydrogen fuel cell trucks. The orders are non-binding, but it shows there is plenty of interest from customers for what will become its major future offering.

The company also improved its balance sheet during the quarter. After raising additional capital during the quarterly period, Nikola now has about triple the unrestricted cash it had in the first quarter of this year.

Don't ignore the risks

Nikola will need that cash, though. For the hydrogen trucks to succeed, Nikola and others will have to invest to build out needed infrastructure. That will include hydrogen production plants, refueling stations, mobile refueling equipment, and vehicle servicing.

Investors shouldn't forget that many things could still cause the company to fail in the long run. Those risks should be top of mind, but this week positive progress and economic tailwinds helped the stock march higher.

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Howard Smith has positions in Nikola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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