nikola: Electric-vehicle startups set to extend blistering rally

Electric-vehicle startups from Nikola to Lordstown Motors were set on Friday to extend a blistering rally in their shares that has put the cash-strapped companies on track for hefty weekly gains.

The winning streak has come without any apparent news or catalyst for the companies, leading several analysts and traders to point to a potential squeeze in the highly shorted stocks.

For instance Nikola, which has more than doubled in value this week, has a short interest of 15.7%, according to Refinitiv. Other big gainers such as Lordstown and Workhorse Group have short interests of 15.2% and 24.3%, respectively.

Used-car retailer Carvana, another highly shorted stock, has also posted strong gains that have pushed up its value by nearly $1.38 billion this week. The EV startups, meanwhile, have added over $500 million to their collective market value.

The rally has coincided with a record winning streak at Tesla, the EV market leader whose stock movement often influences other companies in the sector.

Retail interest

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The surge in shares has also seen strong support from retail investors, with Nikola the fifth most traded U.S. stock by retail investors on Thursday, according to the J.P. Morgan retail flows tracker.

Carvana and Faraday Future, an EV startup with a value of just over $500 million, were also among the top 20 stocks traded by retail investors.

The surge could help Nikola overcome the risk of being delisted. The company late in May received a notice from Nasdaq as its share price had been below the $1 minimum level for the past 30 days.

Nikola shares were 20% higher before the bell on Friday at $1.65, on course to stay above the minimum level for the third straight session. The stock will regain compliance with Nasdaq’s norms if it trades above $1 for 10 consecutive business days.

Nikola’s stock has a 12-month forward price-to-sales ratio of 3.21, compared with Workhorse’s 1.38 and Tesla’s 7.23.

Still, many challenges remain for the EV startups, evidenced by the year-to-date stock price declines of 35% and 75% seen at Nikola and Lordstown, respectively.

Rising interest rates and high levels of inflation have limited their access to funding at a time when efforts to ramp up production are thinning the companies’ cash reserves.

Lordstown is also stuck in a bitter dispute with investor Foxconn, which has threatened to scrap a crucial $170 million funding for the EV maker.

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