Nikola Corp (NASDAQ: NKLA) has investors wondering if it could follow Tesla Inc (NASDAQ: TSLA) in creating substantial wealth or if it’s on a path similar to Fisker Inc, which succumbed to industry pressures and declared bankruptcy in June.

Tesla’s early investors have seen significant gains thanks to its first-mover advantage in the electric vehicle (EV) market.

In contrast, Fisker struggled with declining demand and failed to maintain financial stability.

So, where does Nikola stand?

Nikola is burning cash like there’s no tomorrow

Nikola is currently facing financial challenges that could spell trouble for its investors.

Recently, the company executed a 1-for-30 reverse stock split to maintain its listing on the Nasdaq Stock Exchange—a red flag signaling potential weakness.

Nikola’s cash burn rate is alarming, with an operating cash flow of approximately negative $459 million over the past year.

As of the end of the second financial quarter, the company had a mere quarter-million in cash and cash equivalents while its long-term debt and finance lease liabilities exceeded $266,000.

Additionally, Nikola has issued several convertible notes, which, when converted to common equity, will further inflate its share count.

Last month, Nikola issued another convertible bond, raising $80 million in gross proceeds, and plans to issue an additional $80 million in convertible bonds pending shareholder approval.

In 2023, the company’s stock-based compensation totaled $75.4 million.

While management projects a reduction to approximately $30 million in 2024, this still represents over 10% of Nikola’s current market capitalization.

Moreover, Nikola faces stiff competition from Tesla Semi, which threatens to overshadow its efforts in the trucking sector.

Should you buy Nikola stock in September?

The company’s track record of overpromising and underdelivering has only compounded investor concerns.

In 2023, Nikola projected 3,500 deliveries of its battery electric vehicles (BEVs) and 2,000 deliveries of its fuel cell electric vehicles (FCEVs), but only managed 79 BEVs and 35 FCEVs.

Revenue expectations also fell drastically, with the firm generating just $36 million last year, a sharp decline from the anticipated $1.41 billion.

However, there is a glimmer of hope. Nikola reported an 80% increase in deliveries of its hydrogen fuel cell trucks for 2024, which contributed to a more than fourfold increase in revenue to $31.3 million in its latest quarter.

This improvement has led Wall Street to maintain an “overweight” rating on Nikola stock, with a target price averaging $16.80.

Investors should proceed with caution. While recent performance shows signs of recovery, a few strong quarters don’t necessarily indicate a sustained trend.

A relapse in financial performance could lead to further declines in Nikola’s share price.

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Bill Gates recently shared his thoughts on the current artificial intelligence (AI) boom, revealing that if he were a 20-year-old entrepreneur today, he would immerse himself in the AI gold rush.

Gates, the billionaire founder of Microsoft Corp, which has a substantial stake in OpenAI, is a significant voice in technology, and his comments carry weight in the world of AI stocks.

Gates envisions building an AI-centric startup if he could restart his career.

He believes that today’s AI startups only need a “few sketch ideas” to attract billions in investment—a scenario that embodies the entrepreneur’s dream.

This year alone, AI startups have attracted over $26 billion in funding.

Gates recommends being unique in using AI

According to Gates, success in the AI space hinges on a unique approach to solutions.

He suggests that a novel use of AI could set a startup apart in a market filled with competitors.

Gates mentioned that if his startup were well-funded, he would challenge industry giants like Nvidia, Google, and OpenAI.

Gates also pointed out that finding a niche in AI that is not already saturated with competition could be a winning strategy.

In a recent discussion with CNBC Make It, he acknowledged the difficulty of creating groundbreaking AI applications today.

He noted that the vision of revolutionizing the world with computers and software was unique in the 1970s, but now, many are already focused on AI.

Bill Gates’ message to the new generation

Despite the crowded AI landscape, Gates remains optimistic about the innovation potential.

He believes there are still unexplored opportunities for fresh perspectives in AI.

Gates encourages young entrepreneurs to view this as a frontier ripe for exploration, suggesting that their unique vantage point could lead to significant breakthroughs.

Gates emphasized that while designing innovative AI systems in 2024 is challenging, it is not impossible.

He motivates young people, whether at Microsoft, OpenAI, or elsewhere, to seize the opportunity to offer new insights and solutions in the AI field.

AI stocks have surged in popularity since the beginning of the year, with companies like Nvidia seeing their shares triple in value.

This surge has contributed to the S&P 500 reaching an all-time high of 5,667 on July 16th, and many analysts project continued growth driven by the AI frenzy.

Gates’ insights reflect a broader trend where innovative AI ventures are attracting substantial investment, signaling that the AI revolution is still evolving and full of potential.

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Chinese stocks could benefit as the US Federal Reserve prepares to announce its first rate cut this week, according to Steven Sun, the head of research at HSBC Qianhai Securities. This move may also prompt action from the People’s Bank of China.

“US monetary easing could be a catalyst for a rerating of growth sectors in Chinese markets, with growth outperforming value by an average of 44 percentage points,” Sun wrote in a research note to clients today.

The iShares MSCI China ETF is currently down nearly 15% from its year-to-date high in mid-May.

How could Chinese stocks gain from US monetary easing?

Chinese stocks have faced pressure recently as global institutions favoured US Treasuries and companies like Nvidia Corp due to higher interest rates in the United States compared to China.

However, Chinese equities could see higher price-to-earnings multiples following the Fed’s expected first rate cut on September 18, Steven Sun of HSBC noted in his note.

We stress that earnings growth is the key. We think growth sectors like semiconductors and consumer electronics, which recorded strong earnings in 1H24, could outperform during the upcoming easing cycle.

Historically, lower interest rates in the US have boosted global liquidity, some of which tends to flow into the emerging markets like China.

Additionally, the Federal Reserve often lowers rates to stimulate a stronger US economy, leading to an increased demand for Chinese goods and benefitting stocks of the related companies as well.

Beyond rate cuts: what Chinese stocks need for recovery

While lower interest rates typically improve risk appetite, encouraging investments in higher-risk assets such as Chinese stocks,some experts believe that Beijing needs more than an accommodative monetary policy to attract global investors.

Laura Wang of Morgan Stanley, for instance, believes “business fundamentals” will remain the primary factor in whether investors choose to invest in China equities or not.

Similarly, Aaron Costello of Cambridge Associates considers Chinese stocks as attractively priced at writing but dubs a “fundamental crisis of confidence” tied to the ongoing turmoil in Beijing’s real estate market as the main issue.

Costello also cautioned that lower interest rates may not necessarily boost the economy and, therefore, the stock prices in China if “households don’t want to spend the extra income.” Last week, Bill Winters, the chief executive of Standard Chartered warned clients that China’s housing crisis, despite occasional signs of increased recovery, may not be over just yet.

The outlook for the country’s housing market and broader economy remains uncertain.

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The global race to reduce reliance on China for rare earth minerals is facing significant challenges, as countries like the US, Japan, and Australia struggle to establish alternative supply chains.

These critical minerals are essential for high-tech industries, from electric vehicles to military technology, and securing their supply has become a strategic priority.

Despite multi-billion-dollar investments, delays in construction and declining prices are casting doubt on the ability of these nations to break free from China’s market dominance.

Source: Bloomberg

Rare earth projects in US and Australia face setbacks

Lynas Rare Earths Ltd. leads the US efforts to establish an independent supply chain for rare earths.

The company is constructing a processing plant in Texas, funded by over $300 million in Pentagon contracts.

However, the project has faced significant delays due to environmental permitting issues, pushing back its expected opening.

This delay highlights the hurdles facing the US in its quest for supply chain self-sufficiency.

Similarly, Australia’s Arafura Rare Earths Ltd., which received A$840 million ($560 million) in government loans, is also encountering delays.

The company’s Nolans project, which was expected to begin ramping up production this year, has not yet commenced construction.

These setbacks signal broader challenges for Western nations attempting to establish a reliable rare earth supply chain outside China.

China’s market manipulation

China continues to hold a tight grip on the rare earths market, controlling about 70% of global output and over 90% of refining capacity.

This dominance allows China to influence market prices, creating further complications for rival projects.

Recent price declines, driven by an oversupply from China and a weakening domestic economy, have undercut the profitability of new ventures in the US and Australia.

Iluka Resources Ltd., which received a A$1.25 billion loan to build Australia’s first integrated rare earths refinery, is also facing challenges.

The company has been hit with soaring costs that exceed initial projections, delaying the project’s expected 2026 opening.

China’s ability to manipulate prices exacerbates these difficulties, making it harder for competing projects to get off the ground.

Lessons from Japan

Japan’s struggle to reduce dependence on Chinese rare earths offers valuable lessons for other nations.

In 2010, following a territorial dispute, China temporarily halted rare earth exports to Japan, prompting Tokyo to seek alternative sources.

Japan invested heavily in companies like Lynas, helping it survive periods of low prices and operational difficulties.

This support has reduced Japan’s reliance on Chinese rare earths from 80%-90% to around 60%.

Japan’s decade-long effort highlights the long-term commitment and financial resilience required to compete in the rare earths market.

For countries like the US and Australia, Japan’s experience underscores that breaking free from Chinese dominance won’t happen overnight—it will require significant investment, patience, and perseverance.

Environmental and financial challenges threaten supply

Beyond economic factors, environmental concerns also loom large.

Rare earth mining and processing can lead to significant environmental degradation, including water pollution and habitat destruction.

These issues have led to delays in permitting and construction for projects in both the US and Australia, further complicating efforts to establish a sustainable and independent supply chain.

The environmental impact of rare earth production raises a critical question: can nations outside China develop an industry that is both economically viable and environmentally sustainable?

As these challenges persist, the future of the global rare earth supply chain remains uncertain.

The global race to secure rare earths is a complex, decades-long endeavor, as emphasized by Lynas CEO Amanda Lacaze.

Establishing a new industry requires patient capital, long-term commitment, and the ability to navigate economic, environmental, and geopolitical challenges.

For the US, Japan, and Australia, success will depend on their ability to overcome these hurdles.

While efforts to reduce reliance on China are advancing, the path to a truly independent rare earths supply chain will be fraught with difficulties, and the global market will continue to feel China’s influence for the foreseeable future.

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Shares of Ola Electric Mobility have garnered significant attention during Tuesday’s trading session following buy ratings from two major global brokerages, Goldman Sachs and BofA Securities.

The share price increased by more than 7% on the positive brokerage notes. This follows a largely flat period since its muted listing over a month ago.

After hitting a peak of Rs 157.53 on August 20, the stock has been trading in a range and closed at Rs 107.65 in the previous session, losing over 3% in a listless market.

Bullish outlook from Goldman Sachs and BofA Securities

Goldman Sachs has set a target price of Rs 160 on Ola Electric, implying a 49.53% upside from Monday’s closing price.

The global brokerage expects the company to achieve significant milestones, including an EBITDA breakeven by FY27 and a free cash flow (FCF) breakeven by FY30.

Goldman Sachs projects a robust revenue growth of over 40% compounded annually from FY24 to FY30, with an 11.9% EBITDA margin and a 27% return on invested capital (ROIC) by FY30.

“We view Ola Electric as positively levered to long-term structural trends in India’s electric two-wheeler market despite debates around its in-house battery cell manufacturing,” Goldman Sachs stated.

Meanwhile, BofA Securities has set a target price of Rs 145, signaling a potential 36% upside.

The brokerage emphasized the company’s technology and cost leadership, which it believes positions Ola Electric well to navigate the competitive landscape.

BofA also highlighted the company’s dominance in the electric two-wheeler (E2W) market, with a 40% share year-to-date in 2024.

“The adoption rate of electric two-wheelers in India, currently at 6.5%, is expected to rise to 25% by FY30, and Ola’s leadership in technology and cost will drive its success,” BofA Securities remarked.

Source: Finshots

Concerns from Ambit Capital and HSBC

While the outlook from Goldman Sachs and BofA Securities is bullish, Ambit Capital has a more cautious perspective.

Ambit recently initiated coverage on Ola Electric with a ‘Sell’ rating and a target price of Rs 99.60, citing concerns about increasing competition and potential policy risks.

“New players like Honda and Suzuki entering the market, combined with existing OEMs expanding their portfolios, could erode Ola Electric’s market share from 42.4% in FY25 to 25% by FY31,” Ambit Capital warned.

The firm also raised concerns about the capex-intensive nature of Ola Electric’s business model and the risk of changes in government incentives.

Adding to the cautious sentiment, HSBC also retained its ‘Buy’ rating but flagged concerns about Ola Electric’s recent market share losses.

The brokerage suspects that the losses could be attributed to the ramp-up of lower-cost variants from competitors and noted that there is a 15-20% downside risk to volume estimates for FY25 and FY26 if these trends continue.

Market share and the road ahead

Despite the mixed outlook from various brokerages, Ola Electric’s position as a market leader in the Indian electric two-wheeler space remains solid.

As the company works towards its breakeven targets and navigates a rapidly evolving competitive landscape, the coming years will be crucial in determining whether Ola Electric can maintain its market leadership and fulfill its growth potential.

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