The Drive Towards a Green Future: Will an Intricate Fraud Get in the Way?

As the pressure for clean alternatives to conventional gas-powered vehicles mounts, entrepreneurs, such as Elon Musk, have transformed the electric-powered vehicle industry into a future-oriented marketplace and are making electric vehicles accessible for Americans. For example, Tesla Motors (“Tesla”) is now the number one electric automaker in the United States (“U.S.”). Tesla makes up 35% of the electric vehicle market, beating traditional companies such as General Motors and Ford. (Edison Electric Institute). With success comes competition. In 2014, Trevor Milton founded Nikola Corporation (“Nikola”), which manufacturers semi-trucks and pick-up trucks powered by hydrogen and electric batteries, in competition with Tesla’s electric Cybertruck. (Forbes). However, as of June 2020, Nikola was worth $23 billion despite having zero sales and zero revenues and Trevor Milton has been accused of misrepresenting the company’s technology to investors. (Id.; Graham Rapier, Business Insider).

Milton embarked on his entrepreneurial career when he founded Upillar, an eCommerce company that ultimately failed despite once having 80 million website visitors per month. (Steven Li, Forbes). He then formed dHybrid, a company that enabled gasoline-powered trucking company fleets to run on diesel and natural gas after modifications. Id. Milton signed sales agreements with trucking companies for $100 million, but an investor stole dHybrid’s intellectual property, resulting in litigation, which forced the company to suspend operations. Id. Having gained an understanding of the trucking industry, Milton relaunched dHybrid as a different company, which was acquired by Worthington Industries, resulting in Nikola. Id.

Nikola took a gamble in adhering to a non-traditional model. With Milton as the company’s lead, Nikola began hiring PhDs and engineers with zero experience in the automotive industry, believing that the company needed “people who did not have automotive experience to limit us by being bound to what had been done in the past.” Id. Like Tesla’s objective, Nikola’s objective was to build a superior product, instead of focusing on marketing and sales. Id. Nikola’s business model emphasized developing the truck, instead of focusing on fuel like its competitors. Id. Without a sales team, Nikola received $10 billion in pre-order revenue for its first semi-truck. Id.

As the company grew, Nikola attempted to develop battery and hydrogen-powered trucks, but the lack of a hydrogen fueling infrastructure network proved to be problematic. Id. In September 2020, Nikola and General Motors (“GM”) joined forces when GM acquired an 11% stake in Nikola and Nikola agreed to use GM manufacturing facilities to produce its Badger truck, fuel cells, and batteries. (Dawn Kopecki, CNBC). As of October 2020, following allegations of misrepresentations discussed below, Nikola is worth $14 billion. (Yahoo! Finance).

In September 2020, Milton resigned as executive chairman of Nikola amid allegations by Hindenburg Research (“Hindenburg”) of misrepresentations and deception, which characterized Nikola as an “intricate fraud.” (Edward Ludlow and David Welch, Bloomberg). Hindenburg is leading the effort to expose Nikola’s inner workings and misrepresentations and specializes in forensic financial research. (Hindenburg Research).

Over the course of many years, Milton made false statements on behalf of the company. (Hindenburg Research). Nikola revealed the “Nikola One” semi-truck in 2016, claiming it would be the most “state of the art truck ever built” and that the truck was fully built and functioning. Id. The bold statements did not ripen into reality. Id. Nikola did not display any of the truck’s internal gears and Bloomberg later discovered the truck was incomplete. Id. Just three months prior, the truck was merely frame rails with mounted wheels—lacking a turbine and fueling system and no factory built to mass-produce the truck. Id. These observations furthered allegations that Nikola was further away from selling a functioning product than it claimed.

Additionally, the truck displayed “Zero Emission Hydrogen Electric” on the truck’s side. However, Nikola’s former partners allege that Nikola did not have in-house hydrogen capabilities or hydrogen partners, and the company’s announcement of the truck even shocked those who worked with the company. Id. Following the show, Nikola ceased development of the truck—after drawing in capital and partners. Id.

Fast forward to 2018. Nikola posted a video claiming to show its Nikola One truck driving in an attempt to remedy skepticism from the 2016 show and discontinuation of the truck model. Id. However, a former employee who spoke with Nikola’s Chief Engineer said the video was simply a product of Nikola “towing the truck to the top of a hill and rolling it down.” Id. The road used was a two-mile, straight stretch of road at a 3% decline, with no geological features that would indicate to viewers that the road was not level. Id. An investigator brought an SUV to the same location and rolled the SUV down the hill in neutral gear. Id. The SUV reached 56 mph over 2.1 miles, confirming the possibility that the Nikola One was still not fully functioning because both the Nikola One and SUV were able to roll down the hill without motor-assisted power. Id.

Nikola has also claimed to own natural gas wells and to have cut the cost of hydrogen by 81% compared to its competitors. Id. However, Nikola’s financial filings incorporate no evidence of its ownership of natural gas wells and this claim was removed from Nikola’s website. Id. Milton admitted to media personnel that Nikola has not produced hydrogen at any price. Id.

These misrepresentations, taken in aggregate, led Nikola’s partners and investors to cash out. Id. Worthington Industries alone sold $487 million worth of shares during a two-month period. Id. Hindenburg puts it simply: “We think Trevor Milton, through dozens of outright lies, was able to form partnerships with some of the largest legacy auto companies in the world in their desperation to catch up to Tesla’s [electric vehicle] leadership status.” Id. Bloomberg generally corroborates the assertion that Nikola has not been straightforward regarding its progress on its projects. (Colin Beresford, Car and Driver).

As of September 2020, Nikola faces a shareholder lawsuit led by the Schall Law Firm, based on the Hindenburg report, alleging that Nikola issued “false and/or misleading statements and/or failed to disclose information pertinent to investors.” (Business Wire). The U.S. Department of Justice and the Securities and Exchanges Commission have also started investigations regarding potential fraud. (Ben Foldy, Wall Street Journal). Nikola’s shares fell 8% on the day that the Hindenburg report was released and 15% the following day. (Ciara Linnane, MarketWatch).

Subsequently, Milton has resigned as the Executive Chairman of Nikola. (Alan Ohnsman, Forbes). Nikola will now be using GM battery technology for the production of its trucks, after signing a deal that authorizes $2 billion of new shares to GM. (Ciara Linnane, MarketWatch).