Nikola has gone from announcing a mega-deal with GM last week to now being investigated by the SEC thanks to a short seller’s accusations of fraud.
It’s been quite the rollercoaster of a week for Trevor Milton and Nikola (NASDAQ: NKLA). This day last week, it had announced a huge deal with General Motors (NYSE: GM) 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%.
Then things got messy.
The Hindenburg Report
On Thursday, September 10, famed short-seller Hindenburg Research published a scathing report on Nikola in reaction to the deal:
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 CEO 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.
Here comes the SEC
It’s now being reported by Bloomberg that the Securities and Exchange Commission (SEC) is 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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