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Nikola Motors – the $34 Billion Disaster

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The underlying narrative for the electric vehicle market in 2020 has undoubtedly been Tesla’s relentless
rally which recently culminated in the company being valued at over $400 billion at its peak. A higher value than GM, Ford and Fiat combined! Unlike Nikola Motors, Tesla develops extensive proprietary technology which cuts many traditional automakers and suppliers out of the picture. The astronomical rise in Tesla’s valuation has pressured other auto companies to profit from the ongoing EV wave.

In August 2020, Deutsche Bank and Morgan Stanley pressed General motors to spin off its electric vehicle business
stating that such a move dedicated to EV could be worth up $100 billion dollars.

So what exactly happened to Nikola?

As was reported the company has been backpedaling in the wake of the September 12th Hindenburg Research Report. They are a short seller that bets on stock prices dropping, Hindenburg therefore had an incentive to bring out the worst aspects of the company of which there are many. Most egregious Nikola admitted it had staged a demo and shot a video of the Nikola One Tractor. The 18-wheeler rolling down a hill seemingly under power actually it was
just rolling down a hill as trucks are meant to do when you take your foot off the brakes.

Nikola never stated that the truck was driving under its own proportion 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.

The controversy led to the board of directors announcing changes to the leadership. Stephen Girsky a former Vice Chairman of GM and Nikola board member, was appointed chairman of the Nikola board. In the span of just a few weeks Trevor Milton went from being the youngest newcomer on Forbes 400 billionaires list so suddenly stepping down from Nikola corporation. The electric and hydrogen truck startup he started, amid allegations that the company is an intricate fraud.

The move came 10 days after a financial research firm that had taken a short position in Nikola. Hindenburg Research issued a scathing report that alleged Milton committed a number of fraudulent acts to help the company
achieve its $20 billion dollars valuation. Milton and Nikola refuted the firm’s allegations but not all of them
and in one statement the company did admit it rolled a known running truck down the hill for a misleading video ad released.

In 2018 the US Department of Justice and the SEC have both since opened investigations into the company. Milton founded the company in 2015 with the goal of making hydrogen and electric powered semi trucks for long distance hauling. It also revealed the “Badger” – a passenger pickup truck, it said could get 600 miles of range and do 0-60 miles per hour in 2.9 seconds.

For a brief moment this Summer, Nikola emerged as the poster child of the new generation of EV startups, scoring huge valuations on Wall Street on the news of Telsa’s stock price skyrocketing past every other car company. It went public gaining a valuation of $34 billion early on. Things seemed promising when Nikola¬† announced a strategic partnership and investment from General Motors but things quickly unraveled from there.

While Hindenburg Research opened and admitted a short position in Nikola, it alleged that much of the company’s so-called property vehicle technology was not its own, that prototypes used in promotional materials were not actually functional. That the company exaggerated the number of orders it currently had and that Milton’s brother was placed in charge of building out the company’s hydrogen infrastructure despite his most recent job being a contractor in Hawaii. While Milton and his team have refuted Hindenburg’s claims they did not dispute all of them and in the process they raised more questions than they actually put to rest.

For GM’s part it says the deal with Nikola is still underway and that it did all proper due diligence on that deal before it happened. Though as the Detroit Free Press and other outlets point out, the current situation is more of a PR
black eye for GM than an outright financial risk given the size of the investment. Nikola will now have to deliver on that deal and prove that it has a viable future but it must do so without the man who started it all.