The company, which was expected to make a mark in the electric-vehicle industry, is now struggling due to several allegations.
For the uninitiated, Nikola is an electric-vehicle and battery maker and the firm competes with Tesla in the EV segment. The company went public in June 2020 through a *reverse merger and it reached a valuation of almost $30 billion pretty quickly. Even though the company’s market worth has since declined to a more reasonable $10.5 billion, that valuation is still impressive for a firm which is yet to make any revenue.
*A reverse merger is when a private company becomes a public company by purchasing control of the public company.
Also, on September 8, 2020, Nikola announced a strategic manufacturing partnership with General Motors. GM infused $2 billion in Nikola for an 11% stake in the latter. So, yeah, Nikola sounds like a pretty impressive company, with a caliber to make it big in the EV industry. But things got messed up for Nikola after a report.
The Report
On September 10, Hindenburg Research accused Trevor Milton, the then-CEO of the firm, of making numerous false assertions about Nikola’s technology, including producing a video in which a truck was rolled down an incline to make it look as if the firm had developed a working prototype. Hindenburg also called Nikola “an intricate fraud”
Hindenburg stated that it suspected that Tesla’s relentless surge “pressured” General Motors to strike a deal with Nikola to hike its exposure to the EV space. The report also said, as Nikola shares have remained elevated since it went public earlier in 2020, its “key partners and backers have been cashing out aggressively”.
The Impact
The Stock Decline: Shares of Nikola on the U.S. stock market jumped 53% after the news of the company’s partnership with General Motors. But once the report took the spotlight, the stock declined nearly 13%. But the slump didn’t stop there.
On September 15, shares of Nikola plunged 6% in premarket trade after a Bloomberg report, citing sources, said that the U.S Securities and Exchange Commission is examining the company to analyse the merits of Hindenburg’s allegations.
The Resignation Of The Founder: Late September 20, Trevor Milton, the founder of Nikola tweeted, saying that he has resigned as executive chairman and from its board. The shares of the company tumbled nearly 30% over this news at the start of Nasdaq trading. He gave up the CEO role in June when the firm listed its shares on Nasdaq. Former GM vice chairman and Nikola board member Steve Girsky replaced Trevor’s position immediately.
The Important Thing About Hindenburg Research
It was a rollercoaster ride for Nikola and it might sound like the company is close to shutting down. Because if a company’s founder steps aside amid fraud allegations, it could only mean one thing — The company does fraudulent activities and the founder is a fraud too. However, the case with Nikola is different.
How? The company that is accusing Nikola (i.e) Hindenburg Research is a short-selling investment firm. Short-selling is when an investor borrows shares of stock, sells the shares and pockets the profits. This means, short-sellers profit when a company’s stock declines in value, buy back the shares at a lower price and return them to the lender.
Hence, the more Nikola’s shares plunge, the more money Hindenburg Research stands to make from the decline. This is the meat of the story and this statement makes you think the entire incident from a different perspective — What if Hindenburg made up the whole thing in an attempt to make the share dip and then make profit out of it? What if Nikola wasn’t doing any fraudulent activities?
At this moment, we don’t know the truth yet. All we could do is wait for the SEC and the Justice Department to complete their investigations and disclose what they have found. In the end, we just have two questions — If Trevor Milton wasn’t lying about the prototype, why did he resign and delete his Twitter account? If Hindenburg really cared about the investors of Nikola, why didn’t they come up with this report sooner?
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