Analysis

Why Nikola Stock Pared Big Early Gains Today

A big EV investment and reverse stock split have investors interested in Nikola stock today.

Big news in the electric vehicle (EV) sector led to gains in several names today. Electric heavy truck maker Nikola (NKLA 5.87%) was one of them. Shares jumped as much as 16% in early Wednesday trading.

The stock lost most of those gains, but still traded higher by 3.4% on the day as of 3:30 p.m. ET. There were two news items that investors were likely balancing as they traded shares in the struggling EV stock today.

One EV company gets a big investment

The initial surge likely came as investors in the EV sector digested news that global auto giant Volkswagen was investing up to $5 billion in fellow EV maker Rivian Automotive. Start-ups like Rivian and Nikola have scrambled to raise capital and lower costs as they have worked to ramp up production. That investment could be just what Rivian needs to hold it over until it begins producing and shipping its next lineup of EVs that could spur sales in a big way.

But not every EV start-up will get a big injection of cash like that. Nikola not only had to raise additional capital over the last year, it had to take action just to keep its shares listed on the Nasdaq Stock Market as its share price plunged.

Nikola shareholders recently approved a reverse stock split, and the 1-for-30 reverse split went into effect yesterday. That stock split does’t change the valuation of the company, but it’s also possible investors felt somewhat better that the stock would remain listed on the index. That could explain some of the positive move today.

But if investors think Nikola might get financial support from another automaker the way Rivian has, they are just gambling. Nikola does continue to gain sales of its hydrogen-fueled electric trucks, but it’s a long way from ensuring the company stays viable. In that respect, investors should take today’s gains with a grain of salt.

Howard Smith has positions in Nikola and Rivian Automotive. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.

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