Nicholas (NASDAQ:NKLA) is working to develop a customer base for its hydrogen-powered electric trucks. The company actually announced a large order for electric vehicles (EVs) last month.
But investors weren’t impressed, and Nikola stock struggled. This has led to a drop in share price and now a decision to carry out a reverse stock split. Details of a reverse stock split were provided this week, but investors already knew there would be one. Still, the reaction was that Nikola shares fell more than 30% Thursday afternoon, according to data provided by S&P Global Market Intelligence.
Indeed, one detail of the announcement did not bring new confidence to investors.
Stock Splits Are Not Always Positive
Early June Nikola shareholders approved a reverse stock split with a ratio between 1:10 and 1:30. The Board of Directors approved the maximum ratio allowed, and the reverse split of 1:30 will go into effect for the start of negotiations on Tuesday, June 25.
Investors reacted negatively because it indicates that Nikola’s board isn’t really convinced that the underlying business can help drive the stock price higher. The ultimate reason for the split was to comply to remain listed on the Stock Exchange. Nasdaq Sotck exchange. Shares cannot trade below the $1 per share level for an extended period of time before being delisted.
Last month, Nikola announced an order for 100 of its hydrogen fuel cell trucks for drayage operations at California ports. It’s a use case that the company says will be a great fit for trucks. Nikola has already installed hydrogen fueling station infrastructure in Southern California to support this use case.
But hydrogen infrastructure will be expensive. Even with the announcement of the new order, it appears that the board still wanted to have a cushion for the stock price to remain listed on the Nasdaq exchange for the long term. This doesn’t make investors confident either.
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Howard Smith has positions at Nikola. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
Why Nikola Stock Is Crushed This Week was originally published by The Motley Fool
