Hindenburg Research, which makes money betting against companies with high stock prices, issued a blistering report Thursday on Nikola Corp., alleging an “intricate fraud” by founder Trevor Milton including at businesses he set up and exited in the past decade.
Hindenburg claims it uncovered dozens of lies and misrepresentations by Milton, who founded Nikola (NASDAQ: NKLA) in 2014 after selling a natural gas truck fueling business to Worthington Industries (NYSE: WOR). Mark Russell, who retired in August 2018 as Worthington president and chief operating officer, is CEO of Nikola.
“We have gathered extensive evidence — including recorded phone calls, text messages, private emails and behind-the-scenes photographs,” Hindenburg said. “We have never seen this level of deception at a public company, especially of this size.”
In a statement, the electric truck startup said it “has been vetted by some of the world’s most credible companies and investors. We are on a path to success and will not waver based on a report filled with misleading information attempting to manipulate our stock.”
GM didn’t do its homework, report alleges
The report comes two days after Nikola and General Motors Co. (NYSE: GM) announced they would work together.
GM is taking an 11% stake in Nikola. In exchange for about 47 million new shares worth $2 billion, GM will manufacture Nikola’s Badger electric pickup and supply batteries and fuel cells for the Class 7-8 trucks Nikola plans to build at a plant under construction in Coolidge, Arizona.
Hindenburg said GM failed to do its homework before agreeing to the deal with Nikola. It provided no evidence for the claim.
“We are fully confident in the value we will create by working together,” GM said in a statement. “We stand by the statements we made in announcing the relationship.”
GM is receiving a total of $4 billion, including the stock. Nikola said it will save about $5 billion over 10 years by outsourcing engineering validation, and battery and fuel cell supply.
Hindenburg’s allegations
Among Hindenburg’s allegations:
Powercell AB, a hydrogen fuel cell technology company spinoff from Volvo that formerly partnered with Nikola, called Nikola’s battery and hydrogen fuel cell claims “hot air.”
A heavily hyped breakthrough in battery technology Nikola announced in November 2019 was “vaporware” pitched to Nikola by a former NASA employee jailed for expense account fraud. Nikola sued the company, ZapGo, in March of this year. But Nikola never said it had been a victim of fraud and it never took back its statement on the breakthrough.
Asked about the battery technology by FreightWaves on a media call with GM on Tuesday, Milton said it would offer what it learned for GM to determine if it had value.
“I am surprised that Nikola didn’t clarify after the claimed battery technology breakthrough of last November that they had made a mistake and that the intended provider was convicted for false statements,” Antti Lindstrom, a trucking analyst who follows Nikola at IHS Markit, told FreightWaves.
Questionable expertise for key roles
Key positions at Nikola are staffed by people who lack expertise, Hindenburg alleges.
Trevor Milton’s younger brother, Travis, paved driveways in Maui, Hawaii, before joining Nikola in 2015 as director of hydrogen production and infrastructure. Nikola is planning a network of 700 hydrogen fuel cell stations. Each will cost about $16 million, according to Nikola’s investor deck issued in March.
Travis Milton presumably was among early employees who received some of 6 million personal shares his brother gave to more than 40 early employees on Aug. 26. With a personal fortune of $3.3 billion, Trevor Milton is one of a dozen billionaires under the age of 40 on the latest Forbes 400.
Dale Prows, who described himself on LinkedIn as director of infrastructure development for Nikola since April 2019, previously was CEO and general manager at a residential golf course in Idaho.
“Hindenburg is only making people love us more for trying to destroy us,” Milton said in a tweet Thursday morning. He promised a full defense of the Hindenburg allegations, which it summarized in 53 questions for Milton.
Milton argues regularly on Twitter with company detractors. He threatened to sue a Bloomberg reporter for claiming the 2016 reveal of the Nikola One fuel cell prototype misrepresented the truck’s ability to move on its own power. The Hindenburg report goes into greater detail on that matter.
Hindenburg’s M.O.
Hindenburg achieved its desired result as a short seller. Nikola shares traded closed down $4.80, or 11.33%, at $37.57. GM shares closed at $30.17, down $1.78 or 5.57% lower.
Hindenburg did not respond to a FreightWaves inquiry as to how many Nikola shares it possessed or the size of its short position. Short sellers typically borrow shares and agree to pay the owner a certain amount if the shares fail to decline in value.
Hindenburg issued a similarly negative report July 10 on electric delivery van maker Workhorse Inc., (NASDAQ: WKHS) pointing to an astronomical valuation for a company with little revenue. Workhorse dipped on the report but has since risen. It traded near record highs Thursday.
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