Nikola’s turmoil was bound to happen

09/22/2020 | 10:28am

Obviously, start-ups tend to present their situation in the most favorable light to attract capital from investors. But they sometimes go too far and, in that respect, Nikola is a classic textbook case.

In a report published on September 10, Hindenburg Research accused the company of being a large-scale fraud and questioned its ability to revolutionize hydrogen. The specialized research firm explains that this fraud is based on a web of lies by the CEO, Trevor Milton, in order to raise new money and sign partnerships with heavy goods vehicles with the aim of catching up with Tesla and, as a backdrop, to take advantage of the craze for clean vehicles.

In the Nikola case, there is no question of accounting manipulation as was the case with Wirecard recently. In fact, the exercise could be quite complicated since the company has not yet sold a single vehicle and therefore has a ridiculous turnover compared to its $13.5 billion valuation. It’s about the alleged set-up of a false narrative about Nikola's ability to revolutionize the world of hydrogen and clean vehicles.

I will not dwell on all of Nate Anderson's allegations. First of all, because I would be hard pressed to verify everything, and some of them seem less important to me. For that, I will leave you to examine the original report in that you will find on this link. Although it is based on evidence such as "recorded phone calls, text messages, private emails and pictures taken behind the scenes", our role here is to remain objective and not to rush headlong into a short position of Nikola, because yes, the author of the report has a short position on the stock.

Let's start with a brief chronology of the latest events on the Nikola share. On September 8, 2020, Nikola announced a strategic partnership with General Motors, which took 11% of the capital for $2 billion. This news pushed Nikola's share price up by almost 41% in a single session... before it collapsed by 35% in the following days, against a backdrop of speculation fueled by the publication on September 10 of the Hindenburg Research report. The very next day, Nikola denied the accusations of the research firm, indicating that the start-up has nothing to hide and that this report is only intended to manipulate the share price downward. The truck manufacturer also indicated that it has contacted the US Securities and Exchange Commission (SEC) to indicate its intention to cooperate fully on the investigation of the 53 questions asked by Nate Anderson.

On September 14, Nikola issued a press release responding point by point to some of the questions raised by Hindenburg Research. While it was expected to fall by nearly 10% before the opening of Wall-Street, Nikola's share rebounded by more than 11% after Trevor Milton's answers. The same day, General Motors came to the rescue of its protégé by showing its confidence in the partnership with Nikola. Is this sincere or is it simply to avoid losing face if the company had not done its duty of care? In the meantime, Nikola is hard hit on stock markets.

Among several allegations is a promotional video depicting the Nikola One truck in working condition... when its engine was not yet functional... The video generated some buzz and excitement but Nikola's chief engineer, Kevin Lynk, told the research firm that the video was skillfully shot on a sloping road to give the truck a sense of speed. Bloomberg had already highlighted the exaggerated capabilities of the Nikola truck in June of this year.

Source: Hindenburg Research Report


Nikola said the video was published under the title "in motion" and that therefore, it did not imply that the truck had to move on its own. It added that this video is no longer relevant since other images show Nikola trucks in working order.

Source: Nikola press release in response to the Hindenburg report

Worthington and ValueAct, both financial backers, have sold shares for large sums of money. Worthington, for example, sold $237 million worth of shares in two days in July (more than 25% of its stake) and an additional $250 million in August, according to Nate Anderson's report.

ValueAct also sold 1.4 million shares for nearly $60 million on August 11.

Finally, Trevor Milton, who has now resigned, made sure he would be safe. According to Hindenburg Research report, he received $70 million in the Nikola IPO and changed the lock-up period for his shares from one year to 180 days. Despite resigning, his shares vest immediately and he is entitled to receive $20 million over two years…

Total scam or simple difficulties in revolutionizing the world of transportation? Is it a publicity stunt for Hindenburg or sincere convictions? The case of Hindenburg vs. Nikola will certainly not end there. The specialized research firm has just published its answers to Nikola's latest press release, which it sees as a tacit admission of fraud. The SEC investigation should tell us more and we will keep you informed of the outcome.

Nathan Houtch
© 2020
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