After being listed less than April, Nikola, known as “Tesla in the truck world,” seems to have burst the market value bubble.
According to foreign media reports, US local time on Tuesday, affected by the short-selling report and founder Trevor Milton’s allegations of fraud and sexual assault, General Motors stated that it will postpone the purchase of 11% of shares in American electric truck manufacturer Nikola. Nikola shares fell 7.4% to US$17.88 at the close of trading on Tuesday, the company’s lowest closing price since its listing on June 4; General Motors shares closed down 2.4% to US$28.74.
At present, spokespersons for the two companies declined to comment on the transaction, citing the ongoing negotiations.
“Tesla in the truck industry” was short-selling
On September 8, General Motors stated that it would spend US$2 billion to acquire 11% of Nikola’s shares. It is reported that through this transaction, General Motors will be able to supply Nikola with battery and fuel cell technology and help design and produce Badger pickup trucks.
The transaction was warmly welcomed by Wall Street. Nikola’s stock price rose 40.79% at the close of the day when the news was announced, and closed at 50.05 US dollars. Trevor Milton, founder and executive chairman of Nikola, called GM a “heavenly partnership.” GM CEO Mary Barra described the deal as a “win-win.”
According to the plan, both companies are expected to complete the transaction before September 30. However, things quickly changed.
Just two days after the announcement, on September 10, Hindenburg Research issued a condemning report, accusing Milton of making false statements about the company’s technology in order to attract investors and other automakers. The report stated that Nikola was built on Milton’s “complex fraudulent activities” and questioned Milton’s past business, alleging that many of the companies he founded in the past ended in lawsuits or went bankrupt.
Ten days later, on September 21, Milton suddenly announced his resignation and agreed to give up approximately $166 million worth of shares and board seats.
According to reports, Milton’s sudden resignation and fraud allegations triggered inquiries from the US Securities and Exchange Commission (SEC) and the Department of Justice, and caused Nikola’s stock price to plummet. Since the announcement of the transaction, the company’s share price has fallen by more than 60%, making the company’s attractiveness to General Motors much less attractive.
However, the crackdown continues. According to CNBC reports, two women have filed sexual assault allegations against Milton to the Utah state authorities. The accusers are Milton’s cousin and office assistant. Although in the two charges, Milton as the subject was over 15 years old, the two “victims” were only 15 and 17 years old respectively.
Nikola’s public documents when announcing the partnership show that if the transaction is not completed by December 3, either party can terminate the transaction.
The allegations of fraud and sexual assault have greatly raised the concern of due diligence conducted by General Motors and Nikola.
GM declined to say whether the company is aware of any allegations of fraud or sexual assault related to Milton. Mary Barra endorsed the partnership between GM and Nikola early last month, saying that it had conducted “appropriate due diligence” before announcing the agreement.
It is understood that Nikola and General Motors were set up by the latter’s former vice chairman Steve Girsky. After Milton resigned, he was appointed as the new executive chairman. Girsky is the managing partner of VectoIQ, and VectoIQ is the special purpose acquisition company that led Nikola to go public. After the transaction was completed, he joined Nikola’s board of directors.
As of now, Girsky has not commented on this. Bosch, which has been a partner of Nikola’s automotive suppliers since 2017, also declined to comment on its due diligence procedures for Nikola.
Imitate Musk? Not so easy to do
According to Reuters, in 2018, Nikola accused Tesla of patent infringement in a lawsuit against Tesla, claiming that the Tesla Semi’s design is similar to Nikola One, which is a zero-emission hydrogen electric semi truck released by Nikola. In the accusation, Nikola claimed that Trevor Milton designed the truck in his basement.
However, the British “Financial Times” reported an opposite story.
According to sources, Milton bought the original design of the Nikola One from the designer of the Croatian electric car brand Rimac Automobili. When Milton visited Rimac Croatia headquarters in 2015, he met Adriano Mudri, design director, and spent thousands of dollars to purchase virtual 3D models and computer drawings of truck designs.
It is reported that Tesla made a rebuttal last week, saying that Nikola could not protect the truck design because it came from Mudri, not Milton.
A Nikola spokesperson stated in an email that the Nikola One was designed by the company and has a patent. It is common to purchase designs from third parties during the vehicle development process. Although there is a purchase behavior between Nikola and Mudri, he is not a member of the design team, and his design is substantially different from Nikola’s final results. .
In addition, the company’s autonomous driving technology has also been questioned. The short-selling agency Hindenburg Research pointed out in the report that Nikola dragged the truck to the top of a mountain in a remote area, and then filmed the truck rushing down from the mountain as a verification of autonomous driving technology. And Nikola’s response to this is that the company has never claimed that autonomous driving means that the truck “drives” by itself.
These jaw-dropping accusations have shaken the image that Milton has always portrayed. Over the years, he has been trying to imitate Jobs and Musk, trying to link his image with the company, and using his personal charm to help the company raise money and promote it.
In an article in 2019, Forbes described Milton as a “lifetime garage tinker” and described his missionary journey after dropping out of college and then heading to Brazil. He said that it was this journey that made him pay attention to environmental issues. In 2010, he founded a company to design natural gas systems.
This is a very typical report on the image of the founder. By comparing Nikola with Tesla, Milton’s image is directly connected with Musk.
College dropouts, landing in an extremely complex field, and then disrupting the entire industry overnight, this model sounds familiar. Elizabeth Holmes, the founder of blood testing startup Theranos, also used the same method to avoid rigorous scrutiny and helped the company reach a $9 billion valuation before it was proven to be a fraud.
After the Theranos scandal, the era of founder worship seems to be drawing to a close. However, two years later, the collapse of Milton’s image shows that this model has not yet ended.
Not collapsed? Business model may save its life
However, does this mean that Nikola will follow Theranos’s footsteps and be annihilated?
When General Motors was about to spend $2 billion to acquire shares in Nikola, the latter had almost no income and had never produced a truck. But the news of the acquisition still made Nikola’s market value briefly surpass Ford.
It is true that there are factors boosting the technology stock bubble, but it is the business model proposed by Nikola that attracts investors and other automakers. This model has attracted celebrities, investors and industry giants in the automotive industry, but it also depends on major technological advancements and substantial cost reductions.
When Trevor Milton founded Nikola in 2015, only a few startups were looking for ways to accelerate the development of clean energy in the automotive industry. Milton saw the potential of hydrogen as a non-fossil fuel energy source for trucks, which led Nikola to initially plan to use batteries to power trucks. Due to its cost, hydrogen has not yet received any practical attempts in the automotive industry.
The company proposed whether it would be more economical if the company that makes hydrogen-powered vehicles also sells hydrogen fuel. The sale of fuel can pay for the construction of a network of hydrogen refueling stations, making hydrogen-powered trucks more viable.
“The only way to reduce costs is to integrate it with the truck. When you buy our truck, we will provide you with hydrogen service and all the fuel needed for the entire life cycle,” Trevor Milton said in a podcast in July Said. “And you only pay by the mile.”
This method faces technical and cost challenges. Nikola also deliberately downplayed these details in his March speech, assuming that the company can purchase electricity at a price much lower than the current price and its hydrogen power plant will also operate at full capacity. It records in the footnote of the presentation: “Due to the anticipated technological advances, it is expected that savings will be made in 2025 and beyond.”
The business model that underpins Nikola is supported by the automotive industry. In addition to Mary Barra, CEO of General Motors, Stephen Girsky, a celebrity in the automotive industry, Robert Bosch GmbH, a German auto parts manufacturer, and Iveco, a European truck manufacturer, have also endorsed. Of course, these companies did not take too much financial risk for Nikola. For example, General Motors originally planned to accept shares in Nikola worth $2 billion in exchange for providing batteries and fuel cell technology, and this transaction did not include any cash.
Another key element of Nikola’s promotion is its plan to reduce the cost of producing so-called green hydrogen, which relies on renewable energy to produce hydrogen fuel.
Nikola said in this year’s investor briefing that it can produce green hydrogen at a price of US$2.47 per kilogram; analysts said that such a price is difficult to achieve in the near future. JPMorgan Chase analysts said in June that the cost of producing, storing and distributing green hydrogen is currently too high, adding that electricity accounts for 80% of the cost of hydrogen production.
Nikola assumes that the company can buy renewable energy at 3.5 cents per kilowatt hour. According to the US Energy Information Administration, industrial customers pay nearly 7 cents for grid electricity on average, while commercial customers pay nearly 11 cents for grid electricity.
Hydrogen used in chemical production and many other industries is usually produced from coal or natural gas through a carbon emission process. On the other hand, green hydrogen produced from renewable energy sources eliminates carbon emissions because the electrolysis process removes hydrogen atoms from water molecules. Currently, green hydrogen accounts for only 1% of global hydrogen production.
However, in the past five years, the production costs of wind and solar energy have fallen by about 40%. According to data from the data company IHS Markit, the minimum production cost of green hydrogen is about 4 Euros per kilogram. IHS Markit predicts that by 2030, as more projects are deployed on a large scale in areas where renewable energy can be purchased cheaply, the cost of green hydrogen will fall below 2 euros.
In addition, major industrial partners are still supporting the troubled company.
According to Reuters, the German industrial group Bosch is still providing parts for the planned hydrogen truck; Nikola financial executives recently stated in an investor event that Bosch and the European company CNH Industrial that plans to manufacture Nikola Tre are still partners; General Motors still plans to produce Badger pickups and provide technology for heavy-duty trucks; fleet owners who have placed semi-truck orders have not opted out.
On Wednesday, the company stated that its production schedule and engineering plan were not affected by the recent scandal and were still on track. This statement, to a certain extent, eliminated investors’ general concerns about its business and transactions with General Motors. On Thursday, Nikola’s stock price rose sharply, once soaring 31%. As of 7:59PM Eastern Time on October 1, the stock price rose 17.72% to 24.11 US dollars.
In addition, as long as Nikola’s business model is successful, it may create a first-mover advantage and form a feedback loop, thereby prompting the sale of more trucks.
Of course, for the current Nikola, rebuilding credibility is the top priority.
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