What is Going on With Nikola Stock?

Nikola stock has been busy. A multi-billion dollar deal with GM, accusations of fraud, an SEC investigation, and now Trevor Milton has left the company.

Sept. 21, 2020

Just last week I wrote about the ongoing trials and tribulations of Nikola (NASDAQ: NKLA). I wasn’t expecting to have to make such a major update to the story so soon, but just this morning Trevor Milton has announced he is stepping down from his roles as Executive Chairman and member of the board of directors of Nikola. 

In his message released on Twitter, Milton stated, “the focus should be on the company and its world-changing mission, not me.” If the move to step out of the limelight seems a little out of character for the outspoken face of Nikola, he made sure to leave his own hubristic flair, signing off with the message “I will continue to spread love everywhere I go and I hope you do as well – for blessed are the peacemakers.”

The announcement has caused Nikola stock to fall about 25% in pre-market trading at the time of writing. 

Stephen Girsky, an experienced industry vet, former vice chairman of General Motors (NYSE: GM), and member of the Nikola board will take over Milton’s role effective immediately.

While the announcement has caused a significant sell-off in Nikola stock, a detachment between Milton and the business may be favorable in the long-term, if there even is a long-term, for the electric vehicle maker. The Hindenburg Research report had Milton firmly in its crosshairs, with so much of the fraudulent accusations aimed directly at the former executive chairman. Whether Girsky will have a company left to salvage will depend on the outcome of the Security and Exchange Commission’s (SEC) investigation and whether it can be proved that Nikola knowingly defrauded its investors. 

Milton’s departure comes at the end of a fairly busy three weeks for Nikola, so how exactly did we get to this point? 

Check out Nikola and the Nature of Fraud in the MyWallSt app today.

The GM Deal

On Tuesday, 8 September, Nikola announced a huge deal with General Motors which would see it partner up with the legacy auto manufacturer to produce vehicles. The strategic partnership also saw GM taking an 11% stake in Nikola that was valued at around $2 billion. The deal was well received, adding legitimacy to Nikola’s ambitious plans while adding a sense of disruption to the somewhat Jurassic GM. Investors lapped it up, with Nikola shooting up 40% on the news and GM up 8%.

The Hindenburg Report

On Thursday, September 10, famed short-seller Hindenburg Research published a scathing report on Nikola in reaction to the deal: 

How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America

Not pulling any punches, according to Hindenburg, “Nikola is an intricate fraud built on dozens of lies”. The report is an extensive attack on the company and founder Trevor Milton. It also tears down the deal with GM and the circumstances which led to its origination, including the pressure Tesla’s skyrocketing share price has put on the legacy automakers. Other highlights include:

  • An accusation that a video titled “Nikola One In Motion” showing the truck moving down a highway at speed involved the truck being towed to the top of a hill and then filming it rolling down. 
  • Questions around Milton’s brother Travis’ lack of experience and qualifications in the field. He is the Director of Hydrogen Production/Infrastructure. 
  • Questions over its German production line. 

The rest of the report is essentially a rebuttal to any claim Milton has made about the company in public since its formation. I wouldn’t expect you to read the full report – it’s quite a doozy — but the opening list of bullet points paints quite a grim picture of Nikola’s operations. 

One thing to keep in mind when reading all this is that Hindenburg Research is actively shorting Nikola stock and is financially motivated by its demise.  

The SEC Investigation

The SEC is now investigating Nikola based on Hindenburg’s accusations of wide-scale deception of investors. Surprisingly, it was actually Nikola who encouraged SEC to get involved, claiming the short-seller is trying to profit from a “manufactured decline” in its share price. The founder of Hindenburg is “encouraged that regulators are examining the situation.” 

Right now, it looks like we have a standoff until the SEC gets to the bottom of this. We must wait with bated breath to find out whether Trevor Milton has called the cops on himself or Hindenburg has been caught out trying to manipulate the market for its own gain. 

I’m not usually one to pick sides, but I find myself leaning toward Hindenburg, if only for the fact that in response to the accusation that Nikola pushed its truck down a hill for a promotional video, its response was that “Nikola never stated its truck was driving under its own propulsion in the video.” AKA: We never said it wasn’t rolling down the hill. 

Investors, be very careful around this stock in the coming weeks and months.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.