Electric-vehicle startups from Nikola to Lordstown Motors were on Friday (Jun 16) 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 per cent, according to S3 Partners. Other big gainers such as Lordstown and Workhorse Group have short interests of 16.5 per cent and 23.9 per cent, respectively.

Used-car retailer Carvana, another highly shorted stock, has also posted strong gains that have pushed up its value by nearly US$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 per cent in a couple of weeks on a short squeeze. Smaller names with high short interest are following suit now.”

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The rally has added more than US$500 million to the collective market value of the EV startups and coincided with a record winning streak at market leader Tesla, whose stock movement often influences other companies in the sector.

Retail investors have also ploughed into EV shares, with the JP Morgan retail flows tracker showing Nikola was the fifth most traded US 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 US$1 minimum level.

Nikola shares were 20 per cent higher before the bell on Friday at US$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 US$1 for 10 consecutive days.

Workhorse and Lordstown rose 8.3 per cent and 7.4 per cent, respectively, while Carvana was slightly up as it eyed weekly gains of 38 per cent.

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 the 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. REUTERS