Sometimes people can be funny.
Nikola (ticker: NKLA) announced on Wednesday that it will adjourn its annual shareholder meeting and will convene it again in July.
The start-up, which makes trucks that run on batteries and hydrogen fuel cells, needs time to garner more support from shareholders for Proposal 2, a key item in the annual proxy statement that will allow Nikola to issue more shares – a necessary preliminary stage for the capital increase more capital. It’s hard to figure out why shareholders are reluctant to cast their votes or vote no. The proposal is intended to help the company.
“Without additional shares, we will not be able to raise the capital we need to advance our mission,” CEO Michael Lohscheller said in a May video to shareholders. “Voting against proposal 2 is the same as voting against the proposal.”
In the first quarter, Nikola produced 63 battery electric trucks and delivered 31 to dealers. Retail sales totaled 33 units.
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Nikola will eventually need more capital to build his business. Nikola ended the first quarter with approximately $200 million in cash on its books and access to approximately $800 million in capital, including its cash holdings. Wall Street expects the company to burn about $150 million per quarter and doesn’t expect to be free cash flow positive until 2027.
In most cases, issuing more shares is not a problem for companies. It’s somewhat unusual to bump into a cap tied to a company’s articles of incorporation. Additionally, the actual number of shares a company holds is usually not an issue for investors. The number is just a placeholder for accounting. Nikola has around 720 million shares outstanding. That’s not the number that investors care about. They take care of the market cap of around $445 million, which is the number of shares multiplied by the share price of 62 cents.
Of course, shareholders seem to realize that approving Proposal 2 is wise. Nikola says a majority of the 77% of shares that have voted so far are in favour. However, there aren’t enough yes answers from the 77% to account for 50% of the total shares outstanding. So Nikola needs to advertise more unless the rules change.
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“There is another proposal in Delaware that would lower that threshold from a majority of all shareholders to a majority or voting shareholders,” said Jonathan Rowe, an analyst at Battle Road Research, who rates Nikola stock as a “sell.”
While the long-term impact on the company is likely to be small, the uncertainty surrounding Proposal 2 is causing some uncertainty among Nikola investors.
Nikola investors have other things to worry about.
As of Wednesday trading, shares are down about 90% over the past 12 months. Rising interest rates and dwindling cash balances have dampened investor enthusiasm for stocks in many startups.
Shares rose 6.3% to 63 cents on Thursday, while the S&P 500 and
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The Nasdaq Composite gained about 0.4% and 0.9%, respectively.
Nikola shares also had a great day on Wednesday, up 9.5%. The value created on Wednesday is approximately $36 million.
There wasn’t much news that could substantiate gains. Nikola made a presentation at a JP Morgan investor conference on Wednesday. That may be one of the reasons, but stocks have been volatile lately.
Write to Al Root at [email protected]