Insights

Why Nikola Stock Crashed Monday

What happened
Shares of electric truck start-up Nikola (NASDAQ: NKLA) are taking a hit Monday after the company announced a new capital raise. As of 1:06 p.m. ET, shares were down 4.9%. 
So what 
Nikola announced today that it received a $200 million investment from funds under advisement by institutional investor Antara Capital. The influx of capital from the sale of convertible notes will go toward “business expansion in the form of scaling truck manufacturing and tooling setup, accelerating the development of its hydrogen infrastructure,” according to the company. But the capital comes at a cost for both Nikola and existing shareholders. 

Image source: Nikola.

Now what
The convertible notes will be due 2026 and carry an interest rate of 8% if paid in cash. The company also has the option to pay the debt in the form of additional notes, but that would carry an interest rate of 11%. 
The conversion price is yet to be determined, but it will be at a share price level much higher than recent prices. It could be a 30% premium to an average for a time period between today’s price and the closing of the transaction. Alternatively, it could be at a price 110% above last Friday’s closing price if that is a lower value. 
Either way, the price will be much above today’s share price, but it will also dilute existing shareholders, which is likely the reason for today’s share price drop. The additional funds are on top of the $800 million in cash and liquidity the company had as of March 31. 
Growth companies need capital, and while current shareholders might not like dilution, if the money helps the company succeed over the long run, they will look back and think this was a smart move by management.
Howard Smith has positions in Nikola Corporation. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. –

What happened

Shares of electric truck start-up Nikola (NASDAQ: NKLA) are taking a hit Monday after the company announced a new capital raise. As of 1:06 p.m. ET, shares were down 4.9%. 

So what 

Nikola announced today that it received a $200 million investment from funds under advisement by institutional investor Antara Capital. The influx of capital from the sale of convertible notes will go toward “business expansion in the form of scaling truck manufacturing and tooling setup, accelerating the development of its hydrogen infrastructure,” according to the company. But the capital comes at a cost for both Nikola and existing shareholders. 

Image source: Nikola.

Now what

The convertible notes will be due 2026 and carry an interest rate of 8% if paid in cash. The company also has the option to pay the debt in the form of additional notes, but that would carry an interest rate of 11%. 

The conversion price is yet to be determined, but it will be at a share price level much higher than recent prices. It could be a 30% premium to an average for a time period between today’s price and the closing of the transaction. Alternatively, it could be at a price 110% above last Friday’s closing price if that is a lower value. 

Either way, the price will be much above today’s share price, but it will also dilute existing shareholders, which is likely the reason for today’s share price drop. The additional funds are on top of the $800 million in cash and liquidity the company had as of March 31. 

Growth companies need capital, and while current shareholders might not like dilution, if the money helps the company succeed over the long run, they will look back and think this was a smart move by management.

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

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