Big news in the electric vehicle (EV) sector led to gains in several names today. Manufacturer of electric heavy duty trucks Nikola (NASDAQ:NKLA) was one of them. Shares rose as much as 16% in early Wednesday trading.
The stock lost most of those gains, but was still up 3.4% on the day as of 3:30 PM ET. There were two pieces of news that likely had investors on edge as they traded shares in the struggling EV stock today.
One EV company gets major investment
The first surge likely came as investors in the EV sector digested the news from the global auto giant Volkswagen invested up to $5 billion in a fellow EV maker Rivian automotive industry. Startups like Rivian and Nikola have been scrambling to raise capital and reduce costs as they work to ramp up production. That investment could be just what Rivian needs to hold off until it starts producing and shipping its next line of electric vehicles that could significantly boost sales.
But not every EV startup gets such a big injection of cash. Nikola not only had to raise additional capital over the past year, it also had to take action to keep its shares listed. Nasdaq Stock market when the stock price plummeted.
Nikola shareholders recently approved a reverse stock split, and the 1-for-30 reverse split took effect yesterday. That stock split does not change the company’s valuation, but it is also possible that investors felt slightly better that the stock would remain listed on the index. That could explain some of today’s positive movement.
But if investors think Nikola can get financial support from another automaker, like Rivian, they’re just gambling. Nikola continues to sell its hydrogen-powered electric trucks, but it is far from certain that the company will remain viable. In that 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 in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
Why Nikola Stock Posted Big Early Gains Today was originally published by The Motley Fool
