Big news in the electric vehicle (EV) sector led to gains for several names today. Manufacturer of electric heavy goods vehicles Nicholas (NASDAQ:NKLA) was one of them. Shares jumped as much as 16% in morning trading Wednesday.
The stock gave up most of those gains, but was still trading up 3.4% on the day as of 3:30 p.m. ET. Investors likely had to balance two news items when trading shares of the struggling EV stock today.
Electric vehicle company gets big investment
The initial surge likely came as investors in the electric vehicle sector digested the news that the global auto giant Volkswagen Invests up to $5 billion in another electric vehicle maker Rivian Automobile. Start-ups like Rivian and Nikola have worked to raise capital and reduce costs while working to speed up production. This investment could be just what Rivian needs to keep it going until it starts producing and shipping its next line of electric vehicles, which could significantly boost sales.
But not all electric vehicle startups will receive such a cash injection. Nikola has not only had to raise additional capital over the past year, but it has also had to take steps simply to keep its shares listed on the exchange. Nasdaq Stock market as its share price plunged.
Nikola shareholders recently approved a reverse stock split, and the Reverse split 1 for 30 came into force yesterday. This stock split doesn’t change the company’s valuation, but it’s also possible that investors will feel a little better about the stock remaining listed on the index. This could explain part of today’s positive development.
But if investors think Nikola could benefit from financial backing from another automaker like Rivian, they’re just gambling. Nikola continues to increase sales of its hydrogen-powered electric trucks, but it is far from ensuring the company’s viability. In this regard, investors should take today’s gains with a grain of salt.
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Howard Smith holds positions at Nikola and Rivian Automotive. The Motley Fool holds positions at Volkswagen Ag and recommends it. The Motley Fool has a disclosure policy.
Why Nikola Stock Made Big Early Gains Today was originally published by The Motley Fool
