Nikola
The prospective manufacturer of electric trucks, Nikola, admitted to the Securities and Exchange Commission that nine statements by founder Trevor Milton were “inaccurate”. Milton had to resign from Nikola in September, shortly after the lies came to light.
Between 2016 and 2020, Milton told a series of whoppers about his new truck manufacturer. Milton took the stage at a press event in 2016 to unveil a prototype of the company’s first truck, the Nikola One. Milton claimed during the event that the truck was ‘fully functioning’. In fact, Nikola never let the truck move under its own power.
Nikola’s most notorious flimflam came in 2018 when the company released a video of the Nikola One ‘in motion’. In fact, Nikola dragged and unrolled the truck that was not in operation on top of a long, shallow slope, and tilted the camera so that it looked like it was driving on level ground.
These and several other misrepresentations came to light in September after a short-selling firm called Hindenburg Research published a report declaring Nikola a “major fraud”. In response, Nikola instructed law firm Kirkland and Ellis to investigate Hindenburg’s allegations. Although the report was not released, Nikola now had nine inaccurate statements before Milton’s departure in September 2020. These include:
- “In July 2016, the company declared that it owns rights to natural gas wells, and in August 2016 that the wells were used as a backup for the production of hydrogen on solar power.”
- “In April 2019, Milton said solar panels on the roof of the company’s headquarters provide about 18 megawatts of energy per day.”
- “In December 2019 and July 2020, Milton said that the company could produce more than 1000 kg of hydrogen at the company’s demo stations and that the company was ‘less than’ $ 3 / kg at that time”
- “In July 2020, Milton said that ‘all important components are done in-house'”
Nikola now admits that these statements were ‘completely or partially inaccurate when they were made’.
Nikola says Kirkland and Ellis did not decide whether the company violated laws when it made these misrepresentations. The investigation of the firm continues.
Nikola says it could still have serious legal consequences for these misrepresentations. Federal prosecutors and the Securities and Exchange Commission were both interested in the situation last year. Nikola says he cannot predict how the investigation will turn out. Nikola has incurred $ 8 million in legal costs under an indemnity agreement with Trevor Milton.
Nikola tries to move past Trevor Milton
At the same time, Nikola argues that the main thesis of the Hindenburg report – that Nikola was a ‘massive fraud’, is inaccurate. Milton was really trying to build a viable hydrogen transportation business, no matter how incompetent. While exaggerating Nikola’s abilities wildly, he also hired experienced engineers to work on his products. Before he left, Milton traded with companies that really know how to design and build trucks.
As Nikola’s new management tried to move past Milton’s antics, they continued with the most promising aspects of the founder’s strategy. Indeed, when announcing its quarterly financial results this week, Nikola said it had completed five prototypes of its Nikola Tre battery electric truck in partnership with IVECO, an Italian truck manufacturer. Nikola says he is working with IVECO to build a production facility in Germany, with trial production starting in June. Nikola is also building a truck factory in Arizona that hopes to launch trucks later this year.
Nikola says it will get trucks into the hands of customers before the end of the year. In a Thursday conference call, the company said there is still strong demand for its battery-electric trucks.
Nikola also said that its hydrogen electric trucks are on track for a planned release date in 2023. The company recently announced an agreement with an electric power supply in Arizona that will help Nikola get hydrogen fuel at a low cost for its planned network to produce hydrogen stations.
Nikola was able to get the price of electricity at its lowest point because hydrogen production could be suspended during hot summer afternoons. This is valuable for electrical utilities because they have to spend a lot of money to ensure they have enough capacity during periods of peak demand. A customer who is committed to consuming no power during a peak demand keeps up with very little cost, enabling them to earn a lot. Nikola says he hopes to bring about similar deals in other states.
In short, the new management of Nikola is really trying to make Nikola a viable trucking business. They examined the most ridiculous parts of Milton’s vision – such as the Badger pickup – and focused on the more viable aspects.
But the clock is ticking. Nikola lost nearly $ 150 million in the fourth quarter of 2020 and has $ 840 million in the bank. The business will soon have to raise more money. And in order to do that, the company’s leaders need to convince investors that they’ve put Milton’s culinary skills in the past and that they now run a normal business with a viable business strategy. It is not clear if they will pick it up. But they try.