A CLOSER LOOK + PODCAST: What’s going on with Nikola?

A Nikola short seller, Hindenburg Research, published a series of fraud allegations about the hydrogen and electric truck startup. Here’s a breakdown of the report and what it means for Nikola and the zero-emission vehicle space.

LEARN MORE ON THE LATEST INSIDE TRANSPORTATION PODCAST 

Over the weekend, I had a discussion with Omar Qazi (@WholeMarsBlog) and K10 (@Kristennetten) about the Hindenberg Research report on Nikola, as well as their personal thoughts about the startup on a bonus episode of the Inside Transportation Podcast.

Both Omar and K10 visited Nikola headquarters and had an opportunity to meet CEO Trevor Milton a few weeks back.

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BACKGROUND ON THE REPORT 

Nikola has been one of the most high-profile zero-emission vehicle startups this year. Its shares jumped following a reverse merger in June that listed the company on NASDAQ. Many industry observers suggest that a combination of Tesla's recent increase in stock price and a retail investor frenzy into EV companies led to increased interest in $NKLA. 

Nikola has kept itself in the spotlight through the repeated media appearances by its founder and president, Trevor Milton. Milton is a regular guest on CNBC, has an active presence on social media, and has even appeared on Inside.com CEO Jason Calacanis' "This Week in Startups" podcast. 

The report was released on the heels of a $NKLA stock price rally last week, when Nikola announced GM would be jointly developing a pickup truck with the company. Right after the GM announcement, shares of $NKLA jumped 53% to $54.54 last Tuesday.  

As a part of the deal, GM would assist Nikola in the engineering, validation, and manufacturing process of the Badger pickup truck. In exchange, GM will acquire an 11% stake in Nikola, worth roughly $2b, and will have the right to appoint a director to Nikola’s board. Nikola would use both GM's Ultium EV battery and Hydrotec hydrogen fuel-cell technology platforms. 

WHAT IS BEING CLAIMED? 

Hindenburg Research, a Nikola short-seller, published the findings of an investigation about Nikola Motor, a hydrogen and electric truck startup that went public in June through a reverse-merger. Hindenburg said it obtained dozens of private emails, text messages, phone calls, and photographs that document false statements made by Nikola and its founder Trevor Milton. 

Some highlights from the report... 

• NIKOLA STAGED VIDEO OF TRUCK RUNNING: Hindenburg claimed that Nikola staged a video featuring its Nikola One hydrogen fuel-cell semi-truck. The firm obtained text messages and investigated the site to find out that the company had towed the truck to the top of a hill and rolled it down, giving viewers the impression that the vehicle was operational. Nikola confirmed today that it had never stated the truck was driving under its own propulsion. 
• NIKOLA CLAIMED IT HAD REVOLUTIONARY BATTERY TECH, BUT WAS VAPORWARE: Nikola has claimed it is ready to unveil "game-changing battery cell technology" at Nikola World 2020, an event scheduled for fall 2020. However, according to the report, Nikola was planning to onboard the technology through an acquistion, and later called off the deal once it found out it was "vaporware." Nikola sued the battery company, ZapGo, in March. 
• NIKOLA CLAIMS THIRD-PARTY TECH IS "OURS": Hindenburg said that Nikola and Milton said that technology being developed by third-party partners was its own, and falsely claimed it was developing some technology in-house, when it was actually being developed by a third-party. 
• NIKOLA'S TECHNOLOGY IS "HOT AIR": A spokesperson for a former supplier partner Powercell claimed Nikola's hydrogen fuel-cell technology was "hot air." 
• NIKOLA ONE PROTOTYPE WAS INOPERABLE: Milton claimed that the Nikola One was a fully-operational hydrogen semi-truck prototype when unveiled at an event in 2016, which was later found to have missing and inoperable parts according to photos obtained by Hindenburg and Bloomberg. 
• HYDROGEN VEHICLE DESIGNATION WAS STENCILED ON CNG TRUCK: Hindenburg also found out that the truck prototype shown off at the 2016 event featured a turbine designed for natural gas (CNG), which would not make it a hydrogen fuel-cell vehicle. Still, Milton ordered his team to add a stencil to the side of the vehicle, which claimed it was a "Zero-Emission Hydrogen Electric" vehicle. 
• NIKOLA ONE PROTOTYPE WAS NOT SELF-POWERED: The firm also claims the vehicle displayed during the event was not self-powered and discovered an electric cable was snaked up the stage into the vehicle. Production of the Nikola One truck stopped shortly after the presentation. 
• WORK ON NZT OFF-ROAD VEHICLE HALTED: After unveiling a prototype of the NZT off-road vehicle at Nikola World 2019, the company quietly scrapped production of the vehicle due to "manufacturing challenges." 
• FALSE CLAIMS OF SOLAR PANELS: Milton claimed Nikola's headquarters was "off the grid" thanks to roof solar panels, but Hindenburg found no evidence of solar panels. (Omar Qazi during the Inside Transportation Podcast told me on Saturday there were some solar panels in the company's parking lot.) 
• NIKOLA DID NOT TRULY BREAK GROUND ON A FACILITY: A Bloomberg report published Saturday showed that the company had not indeed started construction, even though it held a groundbreaking ceremony in July. 

REACTIONS TO THE REPORT

Right after the report was released Thursday night, investor enthusiasm began to fade away. NKLA shares, which reached $54.56 on Tuesday after the GM deal was announced, fell to $28.75 on Monday morning. 

On Friday, Milton published this video on his Instagram, denying Hindenburg's claims and saying the company would issue a formal response to the allegations. Milton continued to deny the report on an Instagram Live story Friday night, where he addressed some of the allegations. He continued to double-down on some of the claims challenged by the report, including his timeline on the construction of a production facility in Coolridge, Arizona. 

The company published a formal response to the allegations this morning, saying that Hindenburg's claims were largely false, while denying and clarifying many of the claims made in the report. Nikola has also retained Kirkland & Ellis LLP. Nikola's stock rebounded following the publishing of the response, closing at $35.79 per share on Monday. 

On Monday, GM CEO Mary Barra said the automaker did "appropriate diligence" on Nikola. 

Learn more about the Hindenburg Report by listening to the bonus episode of the Inside Transportation Podcast here.