Nikola reverse stock split: EV maker shares drop amid Nasdaq delisting risks as date nears

The troubled electric vehicle maker Nikola (ticker: NKLA) saw its stock price plummet yesterday by over 31%, sending it to just under 33 cents per share. The reason for this? The company announced a reverse stock split. Here’s what you need to know.

What is a reverse stock split?

A reverse stock split is when shares of a company are combined from many into one. A reverse stock split can happen in any ratio, and Nikola’s happens to be a 1-for-30 reverse split. The split was approved by Nikola’s board on June 13. This means that for every 30 shares of NKLA today, there will be just one share of NKLA after the reverse split.

What’s the point of a reverse stock split?

The point of a reverse stock split is to artificially raise the price of a stock by eliminating the number of shares available. This elimination is done by merging shares together. When the shares are merged together, they increase in value.

A reverse stock split is the opposite of the more common stock split, which is done to artifically lower the price of a stock. Recent companies that have split their stock include Nvidia and Walmart. Stock splits lower the price of a stock, making it more attractive for retail investors to buy into.

While reverse stock splits are less common than stock splits, several companies have reverse split their shares lately, including WeWork in 2023 and, just last week, Virgin Galactic Holdings.

Why would Nikola implement a reverse stock split?

There are a few reasons a company may implement a reverse split, but in Nikola’s case, it’s because its stock price has fallen so much this year that it is in danger of being delisted from the Nasdaq, notes Reuters. Like most stock markets, Nasdaq has rules that if a stock’s price falls too low, the company will be delisted from its market.

Nikola is in danger of seeing that happen—hence the reverse split is an attempt to artificially raise its stock price so its shares can stay trading on the Nasdaq.

Does a reverse split make Nikola a more valuable company?

No. Though its shares will be priced higher after the reverse split, there will be fewer of them available. So, when you add up the total number of shares by their price both immediately before and after the reverse split, their value will be the same.

When will NKLA’s reverse split shares begin trading?

The company’s shares post-reverse split will begin trading on Tuesday, June 25. That date is, incidentally, when shares of Chipotle Mexican Grill will begin trading after undergoing a 50-for-1 split.