Sometimes people can be funny.
(ticker: NKLA) announced on Wednesday that it was adjourning its annual meeting of shareholders and would reconvene it in July.
The startup, which makes trucks powered by batteries and hydrogen fuel cells, needs time to garner more shareholder support for Proposition 2, a key part of the annual proxy statement that will
to issue more shares, a necessary prerequisite for raising more capital. It is difficult to understand why shareholders are reluctant to vote or vote no. The proposal is designed to help the company.
“Without additional actions, our ability to raise the capital we need to pursue our mission will be out of reach,” CEO Michael Lohscheller said in a video to shareholders in May. “Not voting on Proposition 2 is the same as voting against the proposition.”
In the first quarter, Nikola produced 63 battery electric trucks, delivering 31 to dealers. Retail sales reached 33 units.
Nikola will eventually need more capital to expand 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 balances. Wall Street expects the company to use about $150 million per quarter and does not expect positive free cash flow until 2027.
Most of the time, issuing more shares is not a problem for companies. Coming up against a ceiling linked to a company’s articles of association is a bit unusual. Also, the actual number of shares a company owns isn’t usually something investors worry about. The number is just an accounting placeholder. Nikola has approximately 720 million shares outstanding. It’s not the number that investors care about. They care about the market capitalization of about $445 million, which is the number of shares times the stock price of 62 cents.
Certainly, shareholders seem to see the wisdom in approving Proposition 2. Nikola says a majority of the 77% of shares that have voted so far are in favor of it. But there are not enough yeses in the 77% to reach 50% of the total outstanding shares. So Nikola has to solicit more unless the rules change.
“There’s a proposal that’s still pending in Delaware that would reduce that threshold from a majority of all shareholders to a majority or voting shareholders,” said Jonathan Rowe, an analyst with Battle Road Research, which assesses the shares of Nikola Sell.
While the long-term business impact is expected to be small, the uncertainty around Proposition 2 adds some uncertainty for Nikola investors.
Nikola investors have other worries.
Through Wednesday, shares are down about 90% in the past 12 months. Rising interest rates and shrinking cash balances have dampened investor enthusiasm for the stocks of many start-ups.
Shares rose 6.3% on Thursday to 63 cents, while the
increased by approximately 0.4% and 0.9%, respectively.
Shares of Nikola also had a great day on Wednesday, up 9.5%. The value created on Wednesday is approximately $36 million.
There wasn’t much news to pin the gains on. Nikola made a presentation at a JP Morgan investor conference on Wednesday. That could be part of the reason, but stocks have been volatile lately.
Write to Al Root at email@example.com