Nikola Responds to Criticisms of Fraud

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Following a scathing report from Hindenburg Research that called Nikola a fraudulent company largely dependent upon the blind excitement surrounding electric vehicles, the accused has finally issued a response. On Monday, Nikola released a bulleted letter suggesting the report was the act of an opportunistic short seller that was attempting to take advantage of the period immediately proceeding the announced partnership with General Motors. While Hindenburg didn’t exactly hide that aspect of itself in its own report, it frames the business as only profiting off companies that weren’t above board to begin with. It also received support from Citron Research, which said it likewise thought Nikola needed to be scoped out by the Securities and Exchange Commission (SEC) and promised to help pay for half of any legal fees incurred as a result of Hindenburg’s reporting.

Meanwhile, Nikola was crafting its rebuttal after founder Trevor Milton explained he had to wait on a comprehensive response because he was already in contact with the SEC. As his constant Twitter updates started to become counterproductive, this was likely a wise decision. The response dropped on Monday, clearing a handful of items up while making a bunch of other aspects seem even more suspect.

For example, one of our biggest concerns was the rumors that the Nikola One semi that debuted in 2016 couldn’t actually drive under its own power. We weren’t alone in fretting over that either, Bloomberg reported on the issue in June and Mr. Milton became so outraged he suggested the reporter be fired and threatened a lawsuit.

But here’s the rub  the EV company literally admits it wasn’t functional in its rebuttal.

From Nikola:

As Nikola pivoted to the next generation of trucks, it ultimately decided not to invest additional resources into completing the process to make the Nikola One drive on its own propulsion. After pivoting, Nikola produced prototypes for the Nikola Two, which are self-propelled and have been frequently demonstrated, beginning with demonstration runs at Nikola World in April 2019.

The Nikola One was an incredibly successful proof of concept, and everything the Company learned from that experience has underpinned the successful development of its next generation of trucks that can be seen driven here.

The link takes you to a clip from April 2020 where a finished-looking product makes a lap of a parking lot. But that’s not the vehicle everyone is worked up about, it’s that proof of concept from 2016. Milton had previously said the prototype One semi was “fully functions and works,” however the latest from Nikola seems to suggest the contrary.

There were other items like that, too. At one point Nikola flat out admits the prototype wasn’t operational in a commercial from 2017 where it was filmed moving down the highway. Hindenburg Research framed it as intentionally misleading while the EV firm said it was Hindenburg engaging in trickery because the company never stated its truck was driving under its own propulsion in the video, although the truck was designed to do just that, and claimed investors knew that. A similar explanation was given regarding the third-party inverters it was using. Nikola said it never claimed to have installed its own inverters on prototype vehicles but claimed it was working on its own versions for “quite some time.”

While there were a few items Nikola defended more successfully, notably the value of its existing business contracts and some of the contentious employment decisions that have been made, the refutation didn’t make us feel much better overall. If anything, it seemed to support some of Hindenburg Research’s worst criticisms and really makes it look as though the company got a free ride now that GM is paying it to engineer and build the Badger pickup.

And now for the all-important question, did the short-sellers get their way?

You bet they did. Nikola saw around $5 billion vanish from its market value in the days after the Hindenburg report. It has since been trending back upwards, though has a ways to go before it rebounds from the 25 percent loss it endured since September 8th. We’d feel worse if we didn’t already think Nikola’s share price was wildly overvalued. Until the company starts showcasing more of that advanced technology it’s been yammering on about, don’t expect our opinion to change either. But that doesn’t mean you shouldn’t invest or divest to your heart’s content. The market seems totally exempt from any rational thinking and just barely connected to the real world. Nikola could be worthless or the most valuable company on the planet by the end of September.

[Images: Nikola]

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