Nikola manufacturing upside balanced by execution, competition - Morgan Stanley
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Morgan Stanley started coverage of Nikola Corporation (NASDAQ:NKLA) at a Hold-equivalent rating on monday, arguing that the risk/reward is balanced at present.
Equity analyst Dillon Cumming applauded the strides the company has made in terms of manufacturing and added that the stock offers an attractive way to play a secular trend toward zero-emission vehicles. However, he said growing competition from both incumbents in the auto industry and start-ups as well as risks regarding the companyâs ability to execute on its ambitions keep him sidelined.
âDespite this fundamentally attractive outlook for both overall ZEV penetration and NKLA's own efforts, we expect competition from both incumbents and new market entrants to remain intense - with NKLA likely to benefit from a more modest 'speed to market' dynamic,â Cumming told clients. âWhile we think NKLA's commercialization efforts remain relatively robust relative to the
incumbent average, we expect that NKLA's battery-electric vehicle (BEV) truck production (i.e. supply) may outstrip underlying demand in the near-to-medium term given potential challenges around charging infrastructure maturity - which has already begun to materialize in sell-through dynamics at dealer level for NKLA.â 
As such, he indicated his belief that Nikola (NKLA) may be too early to the game and thus limited in the near term. PACCAR Inc. (PCAR), Daimler (OTCPK:DTRUY), and Volvo AB (OTCPK:VOLAF) were cited as prominent OEM competitors in the longer term.
Cumming said that, given execution risk, âpotential outcomes for both NKLA shares and long-term earnings power remains wide.â He set a $3 price target on the stock and an Equal Weight rating. He added that a $1 bear case and $8 bull case could arise based upon managementâs ability to navigate a choppy macro backdrop.
Nikola (NKLA) shares rose 7.53% during Mondayâs trading.
Read more on truck order trends for Nikola.