Sep 21, 2020

Nikola doesn't look much like Tesla now

Nikola founder resigns as chair amid short-seller allegations, SEC probe

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Before listing on the stock market in June, Nikola Corp. warned that if the employment of Executive Chairman Trevor Milton were to cease, the maker of electric and hydrogen-powered trucks would be “significantly disadvantaged.” 

“Mr. Milton is the source of many, if not most, of the ideas and execution driving Nikola,” the prospectus said of the 38-year-old college dropout. After his resignation on Monday — which came after a short-seller report questioned the company’s claims about its technology — Nikola investors must hope that this statement, like others queried by Hindenburg Research, doesn’t stand up to close scrutiny.

In its short life as a public company, Nikola has soared to a US$13 billion valuation and made the decarbonization of the heavy truck sector a preoccupation for many stock market investors. Milton’s social-media boosterism generated huge excitement among inexperienced retail shareholders, and helped Nikola recruit big name industrial partners such as General Motors Co. and Robert Bosch Gmbh to back its clean transport vision.

Yet Milton’s boasts and inconsistent public statements about his company’s capabilities became a focus for critics and an unnecessary distraction as Nikola tries to bring its first electric and hydrogen trucks to market. His resignation should, therefore, help the company move on from the embarrassing episode of the short-seller report, even if it also removes the company’s biggest champion.

With an investigation by the U.S. Securities and Exchange Commission into Hindenburg’s claims still unresolved, Nikola will have a cloud hanging over it for a while to come. Nikola and Milton deny deceiving investors.

Fortunately, many of the events documented in the Hindenburg report — including a video that purported to show a Nikola truck in motion but which was actually rolled down a hill — happened several years ago. Now, thanks to the extensive involvement of external partners, Nikola should be able to deliver on some of what it has promised. For example, CNH Industrial NV’s Iveco unit has agreed to manufacture Nikola’s first electric trucks, meaning there’s less execution risk than if Nikola were trying to build them itself. As long as the industrial partners don’t decide to walk away. 

Nikola also has some grownups on hand to steady the ship, including new chairman Steve Girsky. The former GM vice chairman has decades of experience and his first priority needs to be resolving the regulatory investigations and focusing on delivering the business plan.

However, there are questions about Girsky’s judgment too. It was his VectoIQ special-purpose acquisition company that took Nikola public and hence he shares the blame for exposing the company to the glare of the equity markets before it was ready.

In fairness, making outlandish promises (and not always delivering on them) hasn’t prevented Tesla Inc. from racing to a valuation of more than US$400 billion. But say what you like about Elon Musk, his company does develop a lot of its own technology, unlike Nikola.

There’s also a wider issue here for stock-market investors. In their rush to raise and spend cash, other SPACs might overlook or tolerate similar weaknesses in their target’s technology or governance. A slew of electric vehicle and battery startups is preparing to go public, without having made any revenue yet. Shareholders will need to become much more discerning, although how many times have you heard that?

In the meantime, there’s a risk for investors that the departure of Nikola’s founder will see it valued and viewed for what it really is: an integrator of technology from established manufacturers that still have a foot in the dying world of combustion engines. Absent its booster-in-chief, the retail shareholder crowd might move on to something more exciting.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.