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Wednesday 2 December 2020
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How the next electric vehicle star has deviated from its course.
Everyone wants to invest early in the next Tesla (TSLA), which has seen its stock skyrocket 559% this year. Tesla’s rise to power has been fueled by the EV company’s ability to make profits for five consecutive quarters for the first time in its history and its impending addition to the S&P 500.
The company’s performance, coupled with signs of improving interest in electric vehicles in the United States, China and Europe, has prompted investors to seek out the next star in the industry, with many hoping it will be the alternative energy truck company Nikola (NKLA). They were wrong.
With a charismatic leader at the helm of Trevor Milton, 38, Nikola went public through a SPAC (Special Purpose Acquisition Company) on June 4 at $ 37.55 a share. Its inventory quickly shot up to $ 93.99 five days later. General Motors, looking to get a head start in alternative energy transportation, planned to take up to $ 2 billion in the business.
But Nikola is not Tesla. Allegations of fraud sparked by a report on short sellers prompted the Securities and Exchange Commission and the Department of Justice to examine the company. And on Monday, the company kicked off a watered-down version of the deal with GM that eliminates the $ 2 billion stake and kills Nikola’s Badger electric pickup. The same one that Milton said would end up going up against Ford’s F-150.
Ultimately, the deal that was supposed to put Nikola on the path to greatness is, as Wedbush analyst Dan Ives put it, “nothing out of the ordinary.”
Nikola Hindenburg’s problems
From the start Nikola looked like a promising company developing hydrogen semi-trailers for the transport industry. But after Nikola went public, short seller Hindenburg bombed a report accusing the upstart company of massive fraud, including faking its product demos. Milton and Nikola have denied the allegations, although Milton resigned as CEO shortly after the report was released.
Hindenburg said a video that appeared to show one of the company’s semi-trailers driving under its own power actually showed the vehicle rolling down a hill. He also said that a previous demonstration of a tractor-trailer that was supposed to run on its own power actually showed that the vehicle was plugged into a power supply below the stage.
Then came the subpoenas. In an SEC filing, Nikola revealed that the commission subpoenaed the company and five of its executives on September 14 over allegations made in the Hindenburg report. The SEC subpoenaed three other officers and employees on September 21. On September 30, the company and its directors were also hit with subpoenas from the SEC.
Separately, on September 19, Milton and the company received subpoenas to appear before a grand jury from the U.S. Attorney’s Office for the Southern District of New York. Finally, on September 21, the company received a subpoena from the New York County District Attorney’s Office.
Oh, and at least five putative class actions have been filed against the company as well as current and former directors, alleging that the company and its employees lied in public statements about Nikola’s business plan and prospects.
GM deal proves Nikola is not a Tesla fighter
So what does the Nikola and GM deal mean? Originally, the companies were supposed to come together to integrate GM’s hydrogen fuel cell and battery technologies into Nikola’s semi-trailers and see GM build Nikola’s planned Badger electric and hybrid pickup truck. The automaker was also supposed to take an 11% stake, or around $ 2 billion, in Nikola.
It’s out the window now. The terms of the new deal, which is in effect a non-binding memorandum of understanding, indicate that GM will supply Nikola with its fuel cell technology, but will not take that $ 2 billion stake in the company.
The Badger is also banned for GM, which means the pickup that Milton told Yahoo Finance he hoped to take crown from Ford’s F-150 will never be built. Instead, Nikola will reimburse all customers who have deposited money for the vehicles.
The move is a major repudiation of Nikola’s vision under Milton and puts the company on track to focus on its semi-trailer business.
This is all from a company that has not actually sold any finished vehicles.
Investors keen to get into a Tesla-like stock early enough to reap the rewards if it turns into an auto giant saw Nikola as a perfect opportunity. Its founder and CEO was an enthusiastic salesman in the vein of Tesla’s Elon Musk, his vehicles were ready to take on the world’s biggest automakers, and he sought to shake up the trucking industry.
But not all companies will be Tesla. Even Tesla, which with a market cap of more than $ 550 billion is now worth more than any other automaker on the planet, has faced a series of setbacks, including over-promises on delivery targets and problems with delivery. production.
And let’s not forget Tesla’s SEC drama. Musk was charged with securities fraud in 2018 for tweeting his 22 million subscribers that he had funding to make Tesla private at $ 420 a share. As part of a settlement with the SEC, Musk agreed to resign as chairman of the board, and he and the company paid $ 40 million in penalties.
It’s no small feat that Tesla is where it is now.
And it’s possible Nikola could overcome his own setbacks – if he focused on his trucking initiatives. The revised deal with GM is a “positive outcome” for Nikola in the medium to long term as he can focus on his Class 8 truck and avoid the distraction of the Badger pickup, JPMorgan analyst Paul Coster wrote in a research note following GM’s announcement.
Although Ives also acknowledged that Nikola has strong ideas for the trucking market, he said the deal with GM would be a tough pill for investors to swallow.
“There is only one Tesla and Musk, but there will be many successful players in the electric vehicle market over the next decade and Nikola hopes to be one of those suppliers,” Ives said. . “Right now they have some Herculean-type challenges ahead.
Through Daniel howley, technical editor. Follow him on @DanielHowley
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