- Investing in Pre-revenue company at a valuation of > 1$ Billion.
Usually, people learn from their mistakes when they get hurt. Luckily, I realized early on my mistake and learned from it before I got burned in the market. Now, what is this stock you may ask? Nikola.
Back in April or May of 2020, I heard of a company called Nikola aiming to disrupt the renewable energy sector with Hydrogen. They were targeting hydrogen fuel truck production and eventually an electric pickup truck. While they claimed they made 10$ Billion dollars in revenue from reservations, this was not going to be realized anytime soon. However, I naively thought that a PS ratio of 4 would easily justify a 40$ Billion Mkt Cap and I bought in… and then sold when I realized my mistake in research.
Key Mistakes
I didn’t put in enough time to understand that their hydrogen truck didn’t even run on its own, but rather was rolled down a hill to simulate driving. When Nikola was pressed with questions about why they rolled a truck down a hill, they answered “we have a working prototype in the Nikola Tre”
…..
Furthermore, after I bought in, I realized I never even tried calculating if Hydrogen was even feasible due to the inefficiencies of converting hydrogen to electricity. Why not just use electricity??? Hydrogen was 3x less efficient and there wasn’t even infrastructure to support this.
When CEO Milton was asked how he was going to decrease the cost of hydrogen, he said “it will be 2$”. When asked how, he promptly avoided the question…….
Furthermore, scaling hydrogen is a whole other issue. There is no current infrastructure. Well, they started constructing their factory and hydrogen stations since June. Let’s see their progress now
Well…… that’s 148 days of doing nothing I guess……..
Then, let’s see who’s managing the Nikola R&D dept. Travis Milton, a guy who previously was a concrete paver in Hawaii. Another red flag. Not sure how this expertise translates….
Here comes the best part. Nikola partners with GM for their electric vehicle technology & as a manufacturer for their electric pickup truck. WHERE IS NIKOLA’s TECH?????????????
Takeaways
Please do solid research on a company unlike me with Nikola. Spend time taking a look at management, past track records, company technology, and verify their Minimum viable product is able to sell to generate revenue before investing!