Shares of Nikola, a hydrogen trucking and technology company, dropped 20% in premarket trading on Thursday. The decline came after the company announced its plans to raise $100 million through the sale of common stock and $200 million through the sale of convertible notes.
With a market capitalization of about $1 billion at the close of trading on Wednesday, this new capital raise is significant in relation to Nikola's current value. Such large capital raises commonly lead to a decrease in a company's stock price, as existing shareholders end up with a smaller ownership stake.
At the end of the third quarter, Nikola had approximately $700 million in cash and liquidity. However, projections suggest that the company will require nearly $500 million in cash to fund its operations for the next four quarters. This, coupled with the fact that positive free cash flow is not expected in the near future, has contributed to a decrease in investor enthusiasm for Nikola stock.
Over the past 12 months, Nikola stock has declined by approximately 59%. The combination of higher interest rates and a slowing economy has dampened investor sentiment towards start-up companies that do not generate positive earnings or cash flow.
Since going public, Nikola has invested around $1.9 billion in building its business. The company's primary focus is on producing hydrogen fuel cell-powered trucks that utilize hydrogen gas produced from water and renewable energy sources. This form of hydrogen production does not generate any carbon dioxide emissions, making it an environmentally-friendly alternative for transportation.
Nikola commenced production of its hydrogen fuel-cell trucks in late July, with some units already being tested by customers.