TOKYO (Reuters): Electric-vehicle startups from Nikola (NKLA.O) to Lordstown Motors (RIDE.O) were on Friday set to extend a searing rally in their shares that has put them 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, whose value has more than doubled this week, has a short interest of 21.7%, according to S3 Partners. Other big gainers such as Lordstown and Workhorse Group (WKHS.O) have short interests of 16.5% and 23.9%, respectively.
Used-car retailer Carvana (CVNA.N), another highly shorted stock, has also posted strong gains that have pushed up its value by nearly $1.38 billion this week.
“We see this every time the market gets hot,” Dennis Dick, a trader at Triple D Trading, said.
“Carvana probably kick-started this, it is up more than 100% in a couple of weeks on a short squeeze. Smaller names with high short interest are following suit now.”
The rally has added more than $500 million to the collective market value of the EV startups and coincided with a record winning streak at market leader Tesla (TSLA.O), whose stock movement often influences other companies in the sector.
RETAIL INTEREST
Retail investors have also ploughed into EV shares, with the J.P. Morgan retail flows tracker showing Nikola was the fifth most traded U.S. stock by such traders on Thursday.
Nikola and Lordstown have drawn a flurry of bullish options activity in recent days as traders place bets on further gains.
On Thursday, more than half a million options contracts on Nikola changed hands making the relatively small company the eighth most active single stock name in the options market, according to Trade Alert data.
The stock surge could help Nikola overcome the risk of being delisted after it received a warning late in May from Nasdaq that its share price had been below the $1 minimum level.
Nikola shares were 16% higher in early trading 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 days.
Workhorse and Lordstown rose nearly 2% and 5%, respectively, while Carvana was up about 3% as it eyed weekly gains of 38%.
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, according to Refinitiv data.
Still, many challenges remain for EV startups.
Rising interest rates and high inflation have limited their access to funding at a time when efforts to ramp up production are already thinning the companies’ cash reserves.
