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Nikola Could Drop the Drama in 2021, Says J.P. Morgan

Nikola news could “turn generally positive” next year, according to J.P. Morgan analyst Paul Coster.

Courtesy Nikola

Scandal-plagued Nikola needs to turn the corner.

This year, Nikola (ticker: NLA), a maker of trucks powered by hydrogen fuel cells, has seen a partnership with General Motors (GM) scaled back, shaken off accusations of faking its technology, and endured the abrupt resignation of Trevor Milton, its founder and executive chairman.

Just last week, waste hauler Republic Services (RSG) canceled an order for 2,500 trucks.

The drama surrounding the “Tesla of Trucking” should end in 2021, as Nikola rolls out actual working trucks and other evidence its technology is workable, according to J.P. Morgan analyst Paul Coster.

Nikola stock has been on a wild ride since its public debut in June, when it hit a 52-week high of $93.99. Nikola shares have since tumbled to around $14. The stock is up strongly on Monday, jumping more than 9% in early trading. They have managed to gain 42% this year, compared with the 15% gain in the S&P 500 index.

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Coster wrote in a note on Monday that he expects the news about Nikola “to turn generally positive,” as he cut his price target to $35 from $40 to “reflect the execution risk associated with a tarnished brand.”

The analyst says Nikola has “cleared house” before year-end, dropping 50% in the last month after the cancellation of partnerships with GM and Republic.

Coster said the partnerships were hastily thrown together by Nikola founder Milton and committed resources to non-strategic initiatives.

Still, it was a boost to Nikola to win backing from GM, which was planning to take an equity stake and help build its electric pickup truck.

Just days after the GM partnership was announced this fall, the short-selling analyst firm Hindenburg Research issued a report that alleged Nikola was faking its technology, pointing to a video from 2016 that showed a Nikola truck rolling down a hill (but not under power). Nikola denied the allegations. Milton left after that, and the GM partnership was trimmed in November.

Still, Nikola has made some progress on other fronts. This month it made an agreement with utility Arizona Public Service to lock in the supply of electricity it needs for a planned fueling network.

In addition, Coster says, two of its electric semitruck Nikola Tre are now in Arizona, and two more are scheduled for January delivery. Nikola could have nine trucks for testing by the end of the first quarter and commercial availability of the Tre in late 2021.

“We expect Nikola to post a video of a functioning Tre in January,” Coster said in his note maintaining an Overweight rating on the stock. “We look for a steady flow of updates for the truck in 2021.

“We expect a lot less drama in 2021.”

Write to Liz Moyer at [email protected]

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