Nikola (NKLA 5.87%) has been working to grow a customer base for its hydrogen-fueled electric trucks. The company, in fact, announced a large order for the electric vehicles (EVs) last month.
But investors haven't been impressed and Nikola stock has struggled. That has led to a dwindling stock price and now a decision to perform a reverse stock split. The details for a reverse stock split were provided this week, but investors already knew one was coming. Yet the reaction was for Nikola shares to tumble over 30% as of Thursday afternoon trading, according to data provided by S&P Global Market Intelligence.
That's because one detail from the announcement didn't provide any new confidence among investors.
Stock splits aren't always positive
In early June Nikola shareholders approved a reverse stock split with a ratio of between 1-for-10 and 1-for-30. The board approved the maximum ratio it was allowed, and the 1-for-30 reverse split will be effective for the start of trading on Tuesday, June 25.
Investors reacted negatively because it signals that Nikola's board doesn't have a large amount of confidence that the underlying business can help raise the stock price. The ultimate reason for the split was to get in compliance to remain listed on the Nasdaq Stock Market. Stocks can't trade below the $1 per share level for an extended period of time before being delisted.
Just last month Nikola announced an order for 100 of its hydrogen fuel cell trucks to be used for drayage operations at California ports. That's a use case the company feels will be a good fit for the trucks. Nikola has already set up hydrogen fueling station infrastructure in Southern California to support that use case.
But hydrogen infrastructure will be costly. Even with the new order announcement, it seems the board of directors still wanted a cushion for the share price to remain listed over the long term on the Nasdaq exchange. That's not making investors confident either.
