Investors dumped Nikola stock Friday after the electric truck maker priced the sale of 133.3 million new shares and sought to issue $175 million in new debt with an annual interest rate of 8.25%.
The new stock sale would raise to nearly 1 billion the number of outstanding shares in the company. Shareholders voted in August to double the number of authorized shares to 1.6 billion from 800 million, effectively agreeing to dilute the value of their holdings as new shares are issued.
The company already has a notice of going concern on file with the Securities and Exchange Commission. It said in a Feb. 23 filing that it may run out of money in the next 12 months and have to “modify or terminate” its business.
Cash needed for recall and scaling fuel cell trucks
The Phoenix-based company had cash and equivalents of $362.8 million as of Sept. 30. The money is sufficient to cover the recall expense and run the business into 2024, former CFO Stasy Pasterick said on a Nov. 2 call with analysts. Pasterick resigned from Nikola effective Dec. 1. Her duties are being handled by CEO Steve Girsky in the interim.
Nikola set aside $61.8 million to replace battery packs in 209 electric trucks recalled in August because of several underhood fires.
The company also needs money to scale its hydrogen fuel cell electric truck business while trying to attract customers to purchase or lease the loss-making trucks that sell for $450,000 before the cost of expensive and scarce hydrogen fuel.
Shares tumble with pricing of new stock and debt
Nikola shares fell 22% on Thursday as the follow-on stock offering and senior unsecured debt offerings were announced. Shares dropped from 98 cents to close Thursday at 76 cents. They fell to 70 cents Friday morning trading on the Nasdaq. The new debt in the form of green convertible senior bonds would pay 8.25% interest with a 2026 maturity date.
The hammering of the stock quickly brought the price closer to and then below the 75 cent offering price of the new shares. Henrik Alex, a frequent poster on Nikola on the investor site Seeking Alpha, said in a Dec. 1 post that he sees little hope for Nikola’s survival.
“Given ongoing, massive funding needs, outsized dilution for common shareholders is likely to continue for the time being,” Alex wrote. “With further disappointment likely ahead next year, investors should sell existing positions and move on.”
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