Electric auto startup Nikola has had major ambitions since being launched in 2015, but the company faces new scrutiny following the sudden resignation of founder Trevor Milton amid fraud allegations.

– Is Nikola a fraud? –

Under Milton, an unabashed booster of the company's technology and the capacity for electric vehicles to remake the auto industry, Nikola sealed agreements with German giant Bosch and US icon General Motors and persuaded many professional investors that it could be the next Tesla.

After premiering on public markets in June, the company, which has around 370 employees, briefly reached a market valuation above that of Ford, which has 188,000 workers.

But the company's stock price has been under pressure since Hindenburg Research, which bet on a fall in Nikola shares, alleged earlier this month that the company was a massive fraud built on dubious claims about its technology.

The US Securities and Exchange Committee and Department of Justice are investigating whether Nikola misled investors, according to The Wall Street Journal.

The controversy has aroused suspicions that Nikola might be the next Theranos, a healthcare startup launched by another charismatic figure, Elizabeth Holmes. Holmes attracted major public figures like Henry Kissinger to the Silicon Valley company before it imploded in scandal.

– How are its finances? –

Nikola does not yet produce autos, meaning it does not have meaningful revenues to the cost of employees and other expenses. In the second quarter, it reported a loss of $100 million.

But the company was able to raise $617 million from its June stock market debut, the company said in August.

Nikola had $698 million in cash on hand at the end of the second quarter and $4.1 billion in debt.

– Bump in the road, or beginning of the end? –

As with electric car titan Tesla, Nikola has had no shortage of skeptics about the company or its outsized ambitions.

Analysts complained after the company's August conference call that they were confused by the company's plans for ramping up electric production.

The surprise departure of Milton adds more questions.

"There's now a perception of Nikola misleading investors and business partners, and this perception has overshadowed the value Nikola brings to the GM partnership, at least in the near term," said Karl Brauer, an analyst for iseeCars.

"The long-term benefits of alignment between GM and Nikola can still materialize, but until they do it's a black eye for both companies."

Wedbush analyst Dan Ives called Milton's exit "shocking," but said the company still has a chance to prove itself.

"Nikola has a strong bench, and now it's all about execution going forward, with the GM partnership a linchpin to its success," Ives said in a note. "In a nutshell, Nikola is still a 'prove me' stock."

For its part, GM said it still looked forward to closing the transaction with Nikola, which will help it "seize the growth opportunities" in zero-emission vehicles, the company said.

Founder of truck maker Nikola resigns after fraud allegations
New York (AFP) Sept 21, 2020 –

Shares of embattled auto startup Nikola tumbled again Monday following the sudden resignation of company founder Trevor Milton in the wake of fraud allegations.

The Phoenix-based company said in a statement late Sunday it had accepted Milton's resignation and he would be replaced immediately by Stephen Girsky, a Nikola board member and former vice-chairman at General Motors.

The resignation of Milton, who served as executive chairman, was the latest twist in a heady two-week period that saw the company soar after scoring an alliance with GM, and then reel as it was hit by fraud allegations that put the company on the defensive.

Shares of Nikola fell nearly 20 percent to $27.58.

Milton launched the company in 2015 to develop trucks and pick-ups powered by electric batteries or hydrogen fuel cells, and though Nikola has not yet built anything, it caught attention by signing strategic partnerships with such renowned groups as GM and German engineering giant Bosch.

The announcement of the GM partnership on September 8 caused shares to leap 41 percent on the New York Stock Exchange amid hopes that the Arizona company would be the next Tesla.

But two days later, investment company Hindenburg Research published a report accusing the startup of "intricate fraud" based on multiple lies by Milton, who it said "misled partners into signing agreements by falsely claiming to have extensive proprietary technology."

That announcement triggered a plummet in share value, with stock diving 36 percent in three days.

It also sparked investigations by the Securities and Exchange Commission and Department of Justice, according to The Wall Street Journal.

– 'In motion' –

Milton hotly denied the charges and said he would refute them, and in the statement announcing his resignation, he said: "The focus should be on the company and its world-changing mission, not me. I intend to defend myself against false allegations leveled against me by outside detractors."

Nikola also rejected most of the claims in the Hindenburg report. But it did not deny that it staged a 2017 video of one of its prototypes apparently in action.

According to Hindenburg, "Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill."

Nikola responded that it "never stated its truck was driving under its own propulsion in the video" simply saying that it was "in motion."

On Monday, Milton described Girsky as "the right leader to guide our vision at the board level."

Girsky, who worked in senior roles at GM from 2009 through 2014 and served on the board when the auto giant emerged from bankruptcy after the 2008 financial crisis, thanked Milton for his leadership.

"Trevor saw the possibility of creating an end-to-end zero-emission transportation system when the industry was still in its nascent stages and took action to build the Nikola of today, with world-class partnerships, groundbreaking R&D and a revolutionary business model," Girsky said.

Nikola Chief Executive Mark Russell said company leaders are "laser-focused on executing our strategic initiatives and laying the groundwork to become a vertically integrated zero-emission transportation solutions provider."

– GM sticks with Nikola –

Daniel Ives, analyst at Wedbush, called Milton's exit "shocking," but said the company could still succeed.

"Nikola has a strong bench and now it's all about execution going forward with the GM partnership a linchpin to its success," Ives said. "In a nutshell, Nikola is still a 'prove me' stock."

GM reiterated Monday that it stood by a deal that it has touted as a component of its shift to expand the scope of its electric auto offerings. Under the transaction, GM will receive an 11 percent stake and a seat on the board of Nikola, which plans to start producing the Badger pickup truck by the end of 2022.

"We acknowledge Trevor Milton's departure from Nikola and the decision of the Nikola Board to move forward," GM said. "We will work with Nikola to close the transaction we announced nearly two weeks ago to seize the growth opportunities in broader markets with our Hydrotec fuel cell and Ultium battery systems, and to engineer and build the Nikola Badger."

Shares of GM fell 4.8 percent to $30.