eResearch | According to a report in Bloomberg News on Monday, Nikola (NASDAQ: NKLA) is currently under investigation by the U.S. Securities and Exchange Commission (“SEC”) for claims made by Hindenburg Research (hindenburgresearch.com), an activist short-seller research firm, who accused Trevor Milton, founder of Nikola, of fraud related to misinformation on Nikola’s technological capabilities and product offerings.
Nikola is a designer and manufacturer of battery and hydrogen Electric Vehicles (“EV”), who recently began trading on the NASDAQ exchange, previously reported in eResearch’s June 10 article: Nikola Completes Merger and Drives onto the NASDAQ
Although Nikola does not expect to generate any revenue this year, it received significant investor attention when it recently announced pre-orders representing more than $10 billion in potential revenue.
Hindenburg’s research report called “How to Parlay an Ocean of Lies into a Partnership with the Largest OEM in America”, started off by stating,
“Today, we reveal why we believe Nikola is an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton’s career. We have gathered extensive evidence—including recorded phone calls, text messages, private emails and behind-the-scenes photographs—detailing dozens of false statements by Nikola Founder Trevor Milton. We have never seen this level of deception at a public company, especially of this size.”
Fuel-cell and Battery Technology
Nikola claimed it researched and developed its own proprietary technology for EVs powered by hydrogen fuel cells, as it presented its “revolutionary” EV truck at an event and launched video shots of the truck in action.
However, Hindenburg stated that Nikola never had the technology to begin with, as Nikola recently announced plans to pay General Motors (NYSE: GM) $2 billion in stock, for GM to develop Nikola’s EVs using GM’s own intellectual property, rather than Nikola’s “revolutionary” hybrid EV technology.
Nikola is expected to reimburse GM for up to $700 million in capital expenses related to the development of up to 50,000 Nikola-branded EVs annually, for at least six years. GM granted Nikola an intellectual property license to sell the white-labeled EVs across North America.
On a CNBC interview, Mary Barra, CEO of GM, refrained from answering a question regarding GM’s access to Nikola’s IP, which resulted in Hindenburg further questioning if Nikola had the capabilities to build its own EVs.
Nikola One Launch and Video
In 2016, Nikola revealed its new pickup truck, the Nikola One, stating that it was a fully functioning truck.
PHOTO 1: Nikola Tweet Stating It Had a Fully Functioning Truck
However, three year’s after Nikola One’s reveal conference, Bloomberg published a piece called “Nikola Founder Exaggerated the Capability of His Debut Truck”, which stated that people familiar with the truck during the event mentioned concerns about missing gears and motors, with zero signs of any hydrogen fuel cell present in the truck.
The Hindenburg report showed behind-the-scene photos with evidence of just how incomplete the Nikola One was three months before the release event, which consisted of a picture with a large frame of railings with wheels mounted to a suspension.
PHOTO 2: Nikola One, Three Months before the Reveal Event
Two years after the Nikola One release event, Nikola posted a video on YouTube, showing the Nikola One “In Motion” on the road. However, according to a text conversation from one of Nikola’s employees, which was shared on Hindenburg’s report, the Nikola One truck was apparently towed up to a low hill and released on neutral to capture the video.
Nikola’s “Game-Changing Battery Technology”
Last year, Nikola announced details for its new “Game Changing Battery Technology”, which supposedly had a record energy density that could extend EV passenger cars from 300 miles to 600 miles with little to no changes in battery size and weight. Shortly after, Nikola announced it signed a letter of intent to acquire ZapGo, a battery technology company for $57 million.
However, earlier this year, Nikola terminated the agreement and sued ZapGo, alleging fraud, false representation, and failure to disclose that the President of ZapGo had been indicted months earlier for tax fraud.
Before Nikola learned about ZapGo’s questionable claims and entered into a lawsuit, Nikola had already invested $2.2 million into ZapGo.
Nikola’s Response
Today, Nikola published a response to Hindenburg’s report, which stated,
“Nikola believes that the Hindenburg report, and the opportunistic timing of its publication shortly after the announcement of Nikola’s partnership with General Motors Co. and the resulting positive share price reaction, was designed to provide a false impression to investors and to negatively manipulate the market in order to financially benefit short-sellers, including Hindenburg itself.”
In the response, Nikola provided rebuttals for several key points from Hindenburg’s report, while pointing out several parties who previously performed extensive due diligence on Nikola, including Bosch, Hanwha Group, ValueAct Capital, CNH Industrial, VectoIQ Acquisition (NASDAQ: VTIQ), and GM.
According to Nikola, the company has already been in contact with the SEC and intends to fully cooperate regarding inquiries from Hindenburg’s report.
Since the Hindenburg report, Nikola’s stock price has dropped by more than 15%. Nikola’s stock is currently trading at $35.79 per share, a 250% increase in the past year.
CHART 1: NASDAQ 100 (black) vs NKLA (red) – 1 Year Chart
Other recent articles related to the EV industry published by eResearch:
- August 2020: Xpeng Motors, the Third Chinese EV Manufacturer to IPO on a U.S. Stock Exchange, Surges 52% in Stock Price
- July 2020: Tesla’s Quarterly Call – EVs, Self-Driving, Insurance, Solar, and a Call Out to Nickel Miners – the call had it all
- July 2020: Amazon-backed Electric Vehicle Manufacturer Rivian Announces $2.5B Investment
- June 2020: Nikola Completes Merger and Drives onto the NASDAQ
Note: All numbers in USD unless otherwise stated.
The author of this report, and family, employees, and consultants of eResearch may own stock positions in companies mentioned in this article.
