Last summer, Trevor Milton was a newly minted billionaire with a startup that was more valuable than Ford. His company, Nikola, hoped to do for hydrogen-powered semi trucks what Tesla had done for electric sedans and SUVs.
But in September, Hindenburg Research, a financial-research firm that bets against companies it thinks have misbehaved, published a scathing takedown of Milton and Nikola, saying they had made a series of exaggerations and misrepresentations about the company’s products. Milton denied the allegations – although Nikola would later admit at least nine of them were true – but it set off a chain reaction that led to him stepping down from the company.
Where Milton had recently drawn comparisons to Tesla CEO Elon Musk, he now looked more like WeWork founder Adam Neumann, another ambitious, charismatic entrepreneur who left his company amid criticism over his behavior.
In August, Insider began talking to people who have worked for Milton or interacted with him, including friends, investors, and former employees.
Some said Milton has a long history of bending the truth that stretches back to the first startups he founded in his 20s. Milton, his critics say, has lied to boost his reputation, misled partners and coworkers about his companies’ products, and claimed he and his employees built parts they bought from suppliers.
“As you work closely with him, you begin to see that he struggles to tell the truth about anything,” a former coworker told Insider.
Shares of Nikola dropped as much as 12% on Friday after JPMorgan downgraded the fuel-cell truck developer to neutral from overweight, according to a research note.
JPMorgan’s drive to downgrade Nikola was “a tactical move” based more on the timing of future catalysts than the underlying fundamentals, the note said.
According to the bank, the “good news is now priced in the stock, so we step aside for now,” the note said. The bank maintained its price target of $30, representing potential upside of 87% from Thursday’s close.
Much of that good news includes evidence that the company is more focused on its goals and is passed the drama caused by founder and former CEO and chairman Trevor Milton.
Milton voluntarily stepped down from the company as chairman in late September, after a short-seller report from Hindenburg Research alleged that Milton and Nikola deceived investors. Nikola dismissed many of the claims raised in the report.
Nikola “has left much of the drama of 2020 behind,” JPMorgan said.
But JPMorgan sees the Nikola’s story exciting investors once again in mid or late 2021 if customer orders are announced, “and as the first FCEL prototype comes to life,” the note said.
The decline in Nikola on Friday came amid a broader market sell-off in high-growth tech stocks that have been shunned by investors amid rising interest rates. Shares of Tesla were down as much as 13% on Friday.
Electric-truck startup Nikola determined its ousted founder Trevor Milton made several inaccurate claims about the company’s technology following an internal probe.
In an annual regulatory filing released Thursday, the electric-vehicle firm detailed nine statements Milton and the company made from 2016 through the firm’s public listing last year that were “inaccurate in whole or in part, when made.”
In September, short seller Hindenburg Research published a report accusing Nikola of “intricate” and “massive fraud,” alleging, among other things, that Milton misled investors by misrepresenting the capabilities of one of Nikola’s early semi prototypes, the Nikola One. The report sent Nikola’s share price plummeting, sparked multiple federal probes, and led to Milton’s departure from the company.
Following Hindenburg’s accusations, Nikola hired the law firm Kirkland & Ellis LLP to conduct an internal review, the findings of which it published Thursday. In all, the probe concluded that seven statements made by Milton and two made by Nikola were either fully or partially inaccurate.
The comments included a December 2016 statement Milton made claiming that the Nikola One was a fully functioning vehicle. Other misleading statements included an August 2016 claim that “the company had engineered a zero-emission truck” and a July 2016 claim by Nikola that it owned rights to natural gas wells.
The company said it is paying $8.1 million for Milton’s legal fees, including $1.5 million in 2020, as part of his indemnification agreement.
Nikola maintains that many of Hindenburg’s allegations, including the accusation that the EV maker in its entirety is a fraud, weren’t accurate. It said the internal review is ongoing, and that it will continue to investigate whether any of the misleading statements were intentional or caused harm to shareholders.
In the aftermath of the debacle, Nikola scaled back its ambitions to instead focus on building battery-electric and hydrogen-fuel-cell semis for long-haul trucking. A major deal with General Motors fell through, and Nikola abandoned its plans to produce a consumer pickup truck called the Badger. In Thursday’s filing, Nikola said it closed its “powersports” division, which was working on an electric ATV and jet ski, in late 2020
However, following the company’s fourth-quarter earnings call on Thursday, some Wall Street analysts are optimistic that the truck company can move past last year’s scandal and reinvent itself as a major player in the EV space.
“Overall we would characterize last night as a positive step in the right direction after navigating a Category 5 storm post the short report/Trevor departure,” Daniel Ives, an analyst at Wedbush Securities, said in a Friday note. “Nikola has lofty ambitions and a solid product roadmap, now it’s about building back street credibility one step at a time brick by brick.”
Nikola posted a net loss of $384.3 million in 2020 and said it expects to continue losing money each quarter until it begins delivering its trucks in significant quantities, which won’t be until 2022 at the earliest for its battery-electric vehicle and late 2023 for its fuel-cell truck. The company said it expects to deliver 50-100 electric trucks this year, down from a previous estimate of 600.
CFRA downgraded shares of Nikola to a “sell” on Thursday and lowered the price target to $12 per share after the electric-vehicle maker reported earnings.
Senior analyst Garrett Nelson cited “supplier issues” and potential “legal risks” as the main reasons for the downgrade.
Nikola was able to beat consensus earnings estimates in Q4 posting quarterly EPS of -$0.17 versus an expected -$0.24, but the pre-revenue company revealed its 2021 deliveries for the Tre semi-truck would total only 100 units due to supplier issues, down from 600.
As for legal risks to the company, Nikola disclosed in its 10-K that an internal review conducted by Kirkland & Ellis found at least nine statements made by the company and former CEO Trevor Milton were “inaccurate in whole or in part.”
This confirmed several allegations made by short seller Hindenburg Research back in September of last year. However, the 10-K also said that other statements made by Hindenburg were incorrect.
Nikola’s founder Trevor Milton stepped down on September 21, 2020, after fraud allegations were made public. Recent reports out of CNBC indicate Nikola has been forced to pay $8.1 million for its founder’s legal fees even after his departure.
Analyst Dan Ives of Wedbush wasn’t as concerned about potential legal risks as his peers, however. In a note to clients on Friday Ives said, “we would characterize last night as a positive step in the right direction after navigating a Category 5 storm post the short report/Trevor departure.”
Ives called Nikola a “prove me” story and cited investments into hydrogen-powered battery technology, a friendly clean energy environment from the Biden administration, and partnership momentum as his reasoning.
Ives holds a “neutral” rating and a $25 price target on Nikola.
On the other hand, CFRA’s Garret Nelson said, “even absent its legal issues, we think NKLA stacks up less favorably versus other EV names.”
Nikola holds three “buy” ratings, eight “neutral” ratings, and now one “sell” rating from analysts.
Shares of the EV maker were down 4.99% as of 11:36 a.m ET on Friday.