Electric vehicle (EV) company, Nikola (NASDAQ:NKLA), saw its share price rise by 11% on Monday. The surge followed Nikola’s recent filings with the Securities and Exchange Commission (SEC), outlining plans to finalize the sale of convertible debt notes. Expected to raise $40 million in fresh funding, this move forms part of Nikola’s broader strategy to strengthen its financial position.
Convertible debt notes offer a 5% annual yield to the holder and can be converted into stock at Nikola’s discretion after the holding period concludes. These notes are due to mature on September 22, 2024. By this date, investors must receive their principal purchase amount plus interest yield. Failure to meet this payment deadline will see the interest rate on the notes increase to 12.5% annually.
The EV manufacturer has been focusing on expanding its development, manufacturing, and dealership networks for its hydrogen-powered electric trucks. However, securing sufficient funding remains a challenge for the company. In the first half of this year alone, Nikola reported a net loss of nearly $387 million, and further growth initiatives may worsen these losses.
The anticipated $40 million from the new convertible notes could provide a crucial capital boost for Nikola as it seeks to enhance its manufacturing capabilities and vehicle deliveries in an effort to approach profitability and improve margins. Despite this potential influx of funding, securing adequate capital continues to pose a significant obstacle for the EV specialist.
In recent times, Nikola has resorted to issuing new shares as a means of financing its operations. This strategy dilutes value for existing shareholders. Coupled with several controversies that have surrounded the company since its public debut in June 2020, these financial challenges warrant investor caution despite potential for substantial growth at current stock prices.
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