Of Posers, Charlatans and Tricksters – Nikola Corporation?

The Silicon Valley is the cradle of some of the most gifted individuals in the world, and as a result there are often a few bad apples too. Not to say that these bad apples are any less brilliant! And there in lies the rub; it is bad enough to be a crook, but to be a genius crook takes an altogether different level of intelligence.

After all you can fool the average public, perhaps, a couple of times, but to fool the intelligentsia of Silicon Valley, the investors and traded companies, requires mettle of a another kind. One of the most recent and well carried out ruses in the Silicon Valley was Theranos perpetuated by the Stanford dropout Elizabeth Holmes; toast of the elite and the most respected in the US with even army generals, former state officials and politicians vouching for her. But this article isn’t about her at all.

This is about Nikola Corporation, a US-based company that promises to transform the transportation industry by disrupting and innovating. But before we delve in to the lofty claims and promises of Nikola you have to understand that ever since Tesla has upended the automobile market by having a market cap of over $400b at its zenith (which is more than the market cap of Ford, GM, Daimler and Fiat – combined), every other automaker is under intense pressure to have some or the other battery-operated vehicle under its belt. And sure, on 8-Sep-20, GM announced a $2billion equity investment in Nikola (an 11% stake), sending the stock skyrocketing a whopping 40%.

The modus operandi of these apples seems straight out of a playbook:

Promise an outlandish technological breakthrough {The Setup}
Unveil a prototype that’ll utilize the technology in (a) {The Performance}
Rope in investors and VCs and go public-cash out {The Prestige}
Carry on the ruse as long as possible

The Setup

Not much is known about the educational credentials of Trevor Milton, the founder and executive chairman of Nikola, except that he dropped out of college [12] (Utah Valley State University) to start a string of new ventures. Most of them failed but that’s no judgement on Milton. Quite a lot happened before Nikola came to be known as Nikola but that’s water under the bridge.

2016: The announcement that heralded the genius and made the entire transportation industry stand up and take notice was in December 2016 when Milton revealed a revolutionary new truck called “Nikola One”. This truck was supposedly powered by hydrogen fuel cell, the holy grail of alternate energy, and was stenciled with the graphic that read “H2 Zero Emission Hydrogen Electric” and was supposed to be a “fully functional truck” [1]. This was a major announcement that sent ripples through the industry. Imagine the repercussions if there were a fully functional truck with no need of fuel! But a Bloomberg report [14] revealed that the truck was inoperable at the time of unveiling (later accepted by Milton). In fact, few months before the unveiling, Nikola announced “Nikola has engineered the holy grail of the trucking industry. We are not aware of any zero emission truck in the world that can haul 80,000 pounds more than 1,000 miles and do it without stopping. The Nikola One requires only 15 minutes of downtime before heading out for the next 1,000 miles… An average diesel burns approximately $400,000 in fuel and can rack up over $100,000 in maintenance costs over 1,000,000 miles. These costs are eliminated with the Nikola One lease. Now companies can have a zero emission truck with a return on their investment in the first month.”

This was huge, if true, and Nikola said that deliveries of the semi-truck would start is 2020. However, as time passed by the initial buzz started to die down with no updates forthcoming on the said truck.

The Performance

2018: Nikola released a 39 seconds YouTube video [16] titled “Nikola Motor Company – Nikola One Electric Semi Truck in Motion“, that showed as if the semitruck was in motion of its own accord. In reality, the truck was simply rolling down a hill and the entire video was shot to look like a truck moving. Genius, especially since the company did not specifically mention anything except motion and well, gravity tends to induce motion. In fact Ft.com even joked [9] that “Newton would have been a better name for the company than Nikola, it seems“. But the media took the bait and announced that “Nikola One hydrogen-powered semi begins road test” [17].

2019: Nikola announces [18] “Nikola battery prototype cell” calling it “game changing” and “the biggest advancement we have seen in the battery world” virtually transforming the battery technology industry, if true, again. However, no evidence or a working prototype was showcased or presented

The Prestige

2020: Nikola goes public via a reverse merger on 04-Jun20 by special purpose acquisition company. Shares soon spike with retail investor enthusiasm. Milton later announces that they have produced hydrogen (essential for hydrogen fuel cell) at rates cheaper than the rest of the world! However, in an interview on Jul-20, Milton accepted that they’ve yet to install hydrogen production in the station. The stated delivery of the Nikola-One, the first fuel cell truck, scheduled to start in 2020 is now due for 2023.

But all this has not stopped the share price for Nikola to go through the roof which at one point was valued at $34billion (with zero revenue), greater than Ford and Fiat Chrysler. Nikola has signed deals with GM, Anheuser Busch, Bosch, Worthington, and a slew of significant automotive players. Milton has also received investment from Fidelity and ValueAct, among other name-brand institutions.

What next?

Nikola’s current market cap stands at around $12 billion (despite Nikola forecasting zero revenue for 2020 and first $1billion in 2023) and all the chaos in the market happened after a scathing report by Hindenburg Research [1] which claimed that Nikola is “an ocean of lies” and “Nikola is an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton’s career” (Hindenburg research promoters have shorted the Nikola stock). You can read the full report here. Nikola has since then responded to the allegations (which caused the stock to fall nearly 50%) [11] but the Hindenburg research views Nikola’s Response As a Tacit Admission of Securities Fraud.

Even the SEC is now probing Nikola “over short-seller’s (Hindenburg) claims the company misled investors and is an ‘intricate fraud”. Currently the jury is out there with both sides vehemently arguing for the cause and casting aspersion on the intentions of the other. Who will come out victorious? Only time will tell.

References:

Maverick Illusionist

Of Posers, Charlatans and Tricksters – Nikola Corporation?

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