Nikola Motor's founder and chairman Trevor Milton resigned yesterday after the SEC began an investigation into the company and accusations from a short seller, Hindenburg Research, that the entire business is an "intricate fraud" and that its purportedly proprietary technology was, in fact, purchased from another company.
According to the Financial Times, Milton will also forfeit $166 million in shares tied to Nikola's performance. Milton is, nonetheless, walking away with his existing shares in Nikola which are worth approximately $3.1 billion. So, if it was an elaborate con, reputational damage aside it's hard to dispute he's pulled it off.
At the center of the scandal is a 2018 promotional video that appears to show a prototype Nikola One semi-truck driving down a freeway when in fact it was actually pushed down a hill. Milton quickly defended Nikola by saying that the video described the truck as "in motion" and never explicitly claimed it was being driven by its own engine — basically conceding the central point of the report.
This ain't no Elon — Nikola's stock took a beating at the news of Milton's departure, falling nearly 30 percent on Monday. In a statement, Milton said that he resigned because his public fights on Twitter over the scandal became too much of a distraction from the actual company. This is the same person who once said very few people can "out-Elon" Tesla CEO Elon Musk in this world and "he is one of them." Apparently that's not so since getting in trouble on Twitter hasn't stopped Tesla's CEO from turning his company into the world's most valuable automaker. Milton, meanwhile, set his Twitter account to private on Monday.
Nikola is betting on hydrogen for its vehicles as the fuel-cells can hold more energy than lithium-ion batteries found in electric cars. Hydrogen vehicles haven't really taken off, however, because they require fueling stations like traditional cars, which means building out a network of them if there's going to be mass adoption of the technology.
Is it fraud? — One dubious video of a Nikola truck may not necessarily be enough on its own to constitute fraud — the SEC has to prove the company was deliberately lying. But Milton has made other comments in the past of a questionable nature. Bloomberg previously reported that during a 2016 unveiling for the Nikola One, Milton told an audience that the truck they were viewing on stage "fully functions and works," and isn't a pusher, a term used to refer to a prototype vehicle that's been pushed on stage. It turns out that the truck actually was pushed on stage, however.
As a public company, Nikola is subject to securities laws as its statements could lead investors to buy into the company based on misleading information. Nikola's stock has never recovered to the high of $50 it managed when it announced a partnership with GM to manufacture cars. That stalwart of the Detroit motor sector and the company behind the forthcoming electrified Hummer and Cadillac said it conducted due-diligence into Nikola. But, more importantly, it didn't invest any actual money into Nikola, so it doesn't have much to lose if the company collapses.
Electric hype — It's totally possible that Nikola does have a functioning truck as of 2020. But if statements from earlier years suggesting its truck was functional were false, investors could have been deceived into thinking it was further along in the development process than it really was. Nikola used excitement surrounding electric cars and its earlier unveilings to go public and raise money from investors eager to get in on the ground floor of another Tesla. The SEC doesn't take kindly to that sort of deception.
Tesla had its first car in the hands of customers two years before going public and relied on money from Musk and other private investors to survive before going public. As is always the case when technology companies make big promises before actually having something to substantiate their claims, caveat emptor.