What happened

Shares of electric-semi start-up Nikola (NKLA -3.28%) were trading lower on Thursday afternoon. The company's stock price has been sliding since it announced that warrants issued to some of its early investors must be exercised by Aug. 21, a plan that is expected to create millions of new shares of Nikola stock.

As of 2:15 p.m. EDT, Nikola's shares were down about 5.6% from Wednesday's closing price. The stock has fallen almost 40% since July 17, when Nikola revealed its plans to redeem the warrants in a regulatory filing.

So what

Nikola's warrants each give the holder the right to buy one share of Nikola from the company at $11.50, well below the stock's current market price. These warrants were issued to early investors in VectoIQ Acquisition, the special-purpose acquisition company (or SPAC) that merged with Nikola in early June.

A red Nikola Two, an electric semi, hauling an Anheuser-Busch trailer.

Nikola plans to begin deliveries of its electric heavy trucks next year. Image source: Nikola Corporation.

The warrants have traded under the ticker NKLAW since the merger. Nikola announced on July 22 that all of its publicly traded warrants must be redeemed by Aug. 21. After that date, they'll be worth just $0.01 each.

Here's why that has driven the stock price down: If most or all of the warrants are redeemed (which seems likely), Nikola will issue 23 million new shares of stock, diluting current shareholders exactly as if the company had done a big secondary stock offering.

Now what

As of the day of the announcement, Nikola had about 1.18 billion shares outstanding, with just under 800 million circulating. While 23 million shares are enough to be dilutive, the effects shouldn't be drastic.

But the announcement seems to have served as a catalyst for some investors to reevaluate their decision to hold Nikola's shares. Remember, this is a start-up that isn't expected to have any revenue until the second half of 2021 at the earliest and that might need more cash to get its factory built and its innovative electric trucks to market.

Auto investors can expect to learn more next week. Nikola is scheduled to report its second-quarter earnings results after the market closes on Aug. 4.