Tag: trevor milton

FraudSecurities

Nikola: The Next Tesla, Or A Fraud?

Nikola founder, Trevor Milton, recently resigned from his position as Executive Chairman of the Board after facing accusations of fraud. Before delving into the fraud allegations, it is important to understand the genesis of the company, which adds to the gravity of the situation. You may recall, last week we delved into the upcoming fraud trial for former Theranos CEO Elizabeth Holmes. We wanted to continue covering this topic of high profile fraud.

Milton built Nikola in 2014 hoping to reform the transportation sector. His plan in accomplishing this goal was to create mainstream battery-electric and hydrogen-powered vehicles from state-of-the-art zero-emissions technology. Establishing a company based on the same inventor and mission as another company, Tesla to be specific, is not the only suspicious act Milton has committed.

According to Business Insider, on September 10th, 2020, a report published by the Hindenburg Research investment firm contains evidence of Milton providing false statements about his products. More specifically, the report accuses Milton of exaggerating the viability of his products and thus misinforming investors, partners, and consumers. An example of these fraudulent statements is based on a video demo advertising Nikola’s debut semi-truck, the allegedly hydrogen-powered “Nikola One.” The report revealed an exchange of text messages from a Nikola employee developing a plan to roll the vehicle down a hill to manipulate the “high-speed” aspect of the truck. Nikola diverted from the issue by stating the prototype was discarded and therefore irrelevant. To add, they thought the Hindenburg report was released as sabotage considering Nikola’s partnership with General Motors was finalized two days prior. It should be noted, Hindenburg is a short-seller, so they were interested in seeing Nikola’s stock price decline. (Photo Source: Twitter @HindenburgRes).

The company started trading on June 4th, after a reverse merger with VectoIQ. VectoIQ is a publicly-traded special purpose acquisition organization led by Stephen Girsky, the former Vice Chairman of General Motors. Before the Hindenburg report, Nikola was performing well in the stock market. A CNBC article stated that shares of Nikola Corporation increased by 20% at the end of the month. According to the closing price, Nikola was valued at almost $28.8 billion, making the corporation more valuable than Ford. However, Nikola’s stock market surge stemmed from Milton’s announcement of the company’s new battery-electric fuel-cell truck, the Badger. He followed his announcement confirming the company’s partnership with General Motors, a necessary move to get the new truck to market. Nikola did not anticipate to generate income until 2021, but investors were willing to provide a hefty sum for promising vehicles.

Despite the incident that led to his resignation, analysts think Milton’s exodus is a positive and necessary step for the progression of both Nikola and General Motors. Whether the motive for resigning was personal or strictly business, with Milton absent there will be less negative publicity.

What does this mean for Trevor Milton? Along with his resignation, he agreed to relinquish $166 million of equity and a two-year $20 million consulting contract. However, Milton gets to possess $3.1 billion in stock due to a recently finalized separation agreement. He agreed to assist the corporation as an unpaid consultant, but his role in company operations and decision-making are paused for at least three years. In the aftermath of Milton’s resignation, Nikola’s shares decreased significantly in premarket trading, opening Monday, September 21st, at $24.97, the lowest opening price since the company went public in June. It ended the day, closing down 19% at $27.58. As he continues to defend himself against the Hindenburg Research report, Milton’s legal expenses are paid for by Nikola as long as they receive copies of evidence.

With Milton out of the picture, Stephen Girsky has been appointed chairman of the board. General Motors’ main priority is to plan production of the battery-powered Badger truck starting late 2021 or early 2022, ultimately continuing the partnership with Nikola. Although General Motors bears the responsibility for its creation, Nikola will remain in charge of marketing and selling the product upon its release. Because Nikola lacks the cushion of intellectual property and revenue, they heavily rely on the investor’s contribution through the stock market. Nikola’s tarnished reputation requires damage control in order to maintain enough revenue until the Badger is released.

UPDATE: Now that time has passed from Nikola’s public fraud incident, the aftermath has unraveled. As of Monday, November 30th, 2020, General Motors decided to remove themselves from their deal with Nikola, thus relinquishing their $11 million equity stake. Because Nikola failed to live up to their “fast-paced” evolution of electric and hybrid vehicles, General Motors believed it was in their best interest to maintain distance for their future business ventures. Since the manufacture of Nikola’s hydrogen-powered Badger pickup truck relied on a partnership with an automaker, the vehicle’s production has been paused. According to The Verge, the two companies will cooperate to bring, “GM’s Hydrotec fuel-cell technology into Nikola’s Class 7 and Class 8 zero-emission semi-trucks for the medium- and long-haul trucking sectors.” With Nikola partly out of the picture, General Motors can focus on their multi-billion-dollar pursuit for a future involving all-electric vehicles. This requires the automaker to invest $2.2 billion to reconfigure their vehicle assembly plant and create the development process for its modular battery-electric platform, Ultium. They announced last week their $2.2 billion electrification investment will become $27 billion through 2025.  

UPDATE – 07/29/2021

We sort of knew it was coming. The grand jury had been convened. Mr. Milton had a lot of very public statements that were likely false or misleading. So, it was no surprise today when the grand jury indicted him on three counts of fraud. Here’s an update on the matter from CNBC.