Nikola Corp., a would-be maker of electric 18-wheelers and pickup trucks, is in even deeper trouble following the sudden departure Sunday of founder and executive chairman Trevor Milton. This came in the wake of claims by short-seller Hindenburg Research that declared Nikola “an intricate fraud.”
Before the founder bailed and before Hindenburg’s report, Nikola this month had signed an agreement with General Motors: a $2 billion GM investment in Nikola in exchange for an 11 percent share of the company, with GM promising to build the trucks for Nikola and install GM’s new and promising battery technology in the trucks. This gave Nikola big-time credibility for about two days, and then the roof fell in.
As we reported last week, the company has been backpedaling in the wake of the Sept. 12 Hindenburg Research report. As a short seller (the investor bets a stock will go down), Hindenburg had an incentive to bring out the worst aspects of the company. There are many. Most egregious, Nikola admitted it had staged a demo and shot video — “Nikola One in Motion” — of the Nikola One tractor (the cab and propulsion system of an 18-wheeler) rolling down a hill, seemingly under power. Actually, it was just rolling down a hill, as trucks are wont to do when you take your foot off the brakes. Nikola’s alternative-facts explanation: “Nikola never stated its truck was driving under its own propulsion in the video.”
Another major concern about Nikola was that the company was sourcing key technology from third-party suppliers when Nikola claimed they were in-house inventions. Power inverters that Nikola said it developed came from a company called Cascadia. The Nicola Tre tractor was a non-working Nicola One with “H2” and “Zero Emission Hydrogen Electric” painted on the cab, the Hindenburg report says.
All this led to the board of directors “announc[ing] leadership transition” Sunday. Stephen Girsky, a former vice chairman of GM and Nikola board member, was appointed chairman of the Nikola board.
Was GM Too Hopeful, Possibly Gullible?
Having seen the story unfold, there are now questions about whether little Nikola got the better of General Motors in their hookup Sept. 8, which sent the stocks of both companies higher. GM is under pressure to show something for the coming wave of electrification of cars and trucks. It has promising battery technology. It has more EVs coming, including the Hummer electric truck. It has engineering and manufacturing know-how to help itself and small car companies. Assuming Nikola has value.
On the day of the GM announcement, Nikola’s market cap (total value, measured as total NKLA shares times the share price), was about $20 billion. In the deal, GM got a board seat and the 11 percent stake, in exchange for GM’s engineering and validating the truck, and rights to 80 percent of Nikola’s EV credits.
Hindenburg’s report offers this suggestion why GM bought in:
But why sign with Nikola at all? GM’s CEO [Mary Barra] was asked on the day of the announcement what technology GM would get out of the deal. She couldn’t name a single thing.
The real “value” for GM seems to be branding. We believe the legacy automaker simply seeks to latch General Motors’ storied name onto Nikola’s charismatic Founder and Executive Chairman, Trevor Milton. Trevor is perceived by many as a forward-thinking, fresh, visionary entrepreneur capable of rivaling Elon Musk’s allure.
General Motors in 2019 had a chance to partner with Rivian, an EV pickup and SUV startup that does appear to have a plan to get real vehicles to market by mid-2021. But the deal fell apart, apparently because Rivian wanted to do multiple deals such as working with Amazon, while GM apparently wanted a one-on-one monogamous relationship.
Some big shareholders have suggested spinning off GM’s current EV operations and creating a $100 billion company. All of General Motors is currently worth $43 billion.
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