August 3, 2020 BARRON’S M3
months. Warrants give holders the right to
buy stock at a discount—for $11.50 a share,
in this case—and 24 million Nikola war-
rants became exercisable recently. Most of
the warrant-related selling pressure is over
now. Despite recent declines, Nikola stock
is worth about $11 billion.
RBC analyst Joseph Spak’s worst-case
scenario is $20 a share. Officially, he rates
the stock the equivalent of Hold and has a
$46 price target. Getting to $20 means
Nikola didn’t hit his truck market share
estimate he models in 2028.
But 2028 is a long way off. It illustrates a
problem investors have with all EV start-
ups. Nikola’s ultimate success or failure
will be determined far in the future. That
makes EV stocks, in the short run, very
sensitive to changes in investor sentiment.
Nikola’s 56% correction was severe. It
stalled out at around the stock’s 100-day
moving average. The next stop on the worst-
case train might be around $21 a share.
That’s the stock’s 200-day moving average.
It’s very close to Spak’s fundamental case.
Nikola reports earnings on Aug. 4. That’s
the next catalyst for shares, up or down.
U.S.-listed EV stocks we track,excluding
Tesla, are worth some $30 billion, more than
Ford. Include Tesla, and the number jumps
to more than $300 billion.
Tesla, the sector behemoth, is valued at
roughly $750,000 per vehicle delivered, or
about 10 times as much as General Motors
on the same metric. What’s being dis-
counted in Tesla stock, as well as shares of
smaller EV makers, is higher and higher EV
penetration of the light-vehicle market for
years. Tesla stock trades at $1,430.76.
New Street Research analyst Pierre Fer-
ragu has a $1,500 price target on Tesla and
a Hold rating. It’s a good place to review the
stock’s base case. He believes Tesla can sell
two to three million cars by 2025, making it
roughly the size ofBMW(BMW.Germany),
with better-than-industry growth extend-
ing past that year. That’s a good benchmark
for what fundamental assumptions are
reflected in the share price today.
But 2025, like 2029 in the case of Nikola,
is far off. What drives Tesla higher next is
better 2021 earnings. Tesla 2021 earnings
estimates have gone from roughly $9 a
share to $16 a share over the past year. At
this point, with shares trading for 100
times estimated 2021 earnings, Tesla needs
to keep beating Street estimates to maintain
stock price momentum.
Wall Street’s best-case scenarios for
Tesla stock discount a number of different
things. Some see Tesla selling more than 10
million cars in the future. Others see Tesla
selling full self-driving software and mak-
ing EV powertrains for other auto makers.
Still others see value in Tesla’s battery stor-
age and solar business.
Over the short term, the best-case sce-
nario for Tesla stock is a surge in buying
after its inclusion in the S&P 500—some-
thing the stock qualified for after its recent
quarterly profit.
Inclusion would lead to new buying by
index funds, and more buying than selling
drives up stocks. The question is: How
much higher can it go? Tesla stock would
be “overbought”—in Wall Street parlance—
at around $1,700. That’s very rough math,
but it’s a level where traders might decide
to take profits.
An easier bull case is the one for electric
commercial van makerWorkhorse Group
(WKHS). It’s bidding to replace 160,000
U.S. Postal Service vehicles. If it wins,
shares—now at $15.52—will top $20 and
perhaps approach the top Street target price
of $27 set by Roth Capital’s Craig Irwin.
Losing the bid would hurt. Whatever
happens, Workhorse stock, up more than
400% year to date, will stay volatile. So will
shares of its EV peers.B
Industry Action
Performance of the Dow Jones U.S. Industrials, ranked by weekly percent change.*
Technology 5.10%
Consumer Services 1.65
Consumer Goods 0.98
Industrials 0.84
Telecommunications 0.80
Utilities 0.75
Health Care 0.34
Financials 0.21
–1.62 Basic Materials
–4.06 Oil & Gas
- For breakdown see page M32. Source: S&P Dow Jones Indices
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a
prospectus, which contains this and other information, call 1-866-SECTOR-ETF or visit http://www.sectorspdrs.com. Read the
prospectus carefully before investing.
AllETFsaresubjecttorisk,includingpossiblelossofprincipal.SectorETFproductsarealsosubjecttosectorrisksandnon-diversificationrisks,whichgenerally
resultsingreaterpricefluctuationsthantheoverallstockmarket.Ordinarybrokeragecommissionsapply.
TheS&P500isanindexof500commonstocksthatisgenerallyconsideredrepresentativeoftheU.S.stockmarket.Youcannotinvestdirectlyinanindex.
ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is distributor for the Select Sector SPDR Trust.
Visit http://www.sectorspdrs.com or call 1-866-SECTOR-ETF
UTILITIESSECTOROF
THES&P500INONEETF
©2020DowJones&Co.,Inc.Allrightsreserved.2E7838- Place delivery holds
- Changeanaddress
- Reportanissue
- Updateyourpaymentinformation
- Reset your password and more
Manage Your Barron’s
Account Online
Take action atcustomercenter.barrons.com
andavoidcallwaittimes.
Update your account details any time.
It’s quick and easy.