The rise and fall of Nikola
When you think about electric cars, the very first thing that comes to mind is Tesla. It has singlehandedly revolutionized the auto industry. The inevitable switch to electric vehicles and huge potential growth of the market is giving rise to many new auto companies.
One such distinct example was Nikola, and until very recently it was heralded as an up and coming pioneer in zero-emission vehicles.
Founded in 2014 by Trevor Milton, Nikola was deemed as the next big thing in the electric and hydrogen vehicle market, boldly promising to bring breakthrough hydrogen and battery cell technology to power its trucks.
Nikola One, a revolutionary “fully-functioning” hydrogen-powered truck was unveiled by Trevor Milton at an event in December 2016 and was supposed to be a game changer. Production was to commence in 2020.
In March 2020, without clear signs of Nikola One being in production, Nikola announced plans to merge with a SPAC company. A day after the merger was finalized, Nikola stock began trading on the NASDAQ. By August the company was valued at a staggering $13 billion.
On September 8th, Nikola and GM announced a partnership, in which GM would acquire an 11% stake in Nikola in exchange for battery and fuel cell technology as well as building the Nikola Badger. Nikola’s stock jumped by 50%, while GM experienced a 10% jump.
The excitement surrounding the Nikola and GM partnership was short-lived however. Published only two days later on September 10th, Hindenburg Research Group came out with a bombshell of a report that accused Nikola of being “an intricate fraud built on dozens of lies”. The news of the allegations by Hindenburg eventually led to Trevor Milton resigning as Executive Chairman. The share price dropped by 20%.
Below are the most interesting parts I took away from Hindenburg Research Group’s report. They are not my opinions but rather a short summary of what I have read in the report.
Why the Nikola deal for GM?
According to Hindenburg, essentially GM were under huge pressure to catch up with Tesla’s rapidly growing hold on the market. Tesla’s market cap rose to be valued more than GM, Ford, Daimler, and Fiat combined in 2020.
Hindenburg argued that it seemed GM was after the branding. The association with a supposed forward-thinking and visionary founder in Trevor Milton, who could rival Elon Musk, was a perfect opportunity to claim a piece of the inevitable EV market boom and catch up with Tesla.
However, Hindenburg Research argued that in forming a partnership with Trevor Milton, GM did not know what they were getting themselves into. For over a decade, the report argues, Trevor Milton would practice “taking technology from others and claiming it as his own”. They accused Trevor of leveraging these technologies to construct intricate lies that would mislead investors and form the core of his businesses.
Trevor Milton Past
Trevor’s first business adventure was an alarm company which he started after dropping out of college. He exited the business for $300,000. Hindenburg’s interview with the buyer indicated to them that Trevor overpromised, “resulting in a total loss” for the buyer. In addition, Trevor’s “50/50” business partner alleged he only received $100,000 for his 50% stake in the business.
Trevor’s next endeavor was an online classified ads website that sold used cars called uPillar.com. Trevor claimed it had 80 million monthly users at one point and that it essentially pioneered the online shopping cart. Trevor stated that rapid growth and the location in Utah ultimately doomed his startup. No evidence was found by Hindenburg to support the claim of 80 million users, while the shopping cart first appeared way back in 1994, the year Amazon was founded.
Trevor's first experience with the alternative vehicles market was with a company called dHybrid, Inc. The company was founded by Trevor and Mike Shrout, who had developed compressed natural gas conversion technology for diesel engines.
The company, with the technical expertise of Shrout and the business acumen of Trevor Milton, got off to a good start by impressing the CEO of Swift Transportation in a demo. dHybrid was initially to convert 10 trucks as part of a more substantial development agreement. Swift paid $2 million for a 9% stake in the company.
Unfortunately, the deal didn’t turn out well for Swift. Swift filed a lawsuit in mid-2012, alleging that dHybrid failed to deliver on its agreement by only converting 5 trucks instead of the 10 initially promised. Swift also alleged that the performance of the trucks didn’t meet the expectations set in the agreement.
In 2012, while dHybrid was in turmoil facing litigation, Trevor Milton started a new company with his dad with a very similar name to dHybrid. Hindenburg Research provided evidence that Trevor Milton claimed the company had been in operation well before it was founded.
In 2014 Trevor’s new company was acquired by Worthington. Worthington Industries paid about $19 million for a 79.59% stake in the company. Hindenburg learned from former employees that dHybrid Systems concealed major fatal product issues from the buyer.
Originally named Bluegentech, the company initially attracted partners using Trevor Milton’s credibility accredited to the deal with Worthington.
Bluegentech became Nikola, and Trevor Milton continued to strike supplier deals to construct the very first Nikola truck with third-party parts.
On May 9th, 2016, after slow progress, the company announced its plan to unveil the revolutionary Nikola One.
“We will have a chain on the seats to prevent people from coming in just for the safety. I don’t want someone to end up doing something and driving this truck off the stage.”
On December 1, 2016, during the presentation, Trevor Milton repeated multiple times that the prototype on stage was a fully functioning truck. He had to explain that there was a chain on the seats in order to prevent people from driving the truck off stage.
“This isn’t just a pusher like a lot of vehicles that they unveil that are just vehicles that don’t actually function. This is a fully functional vehicle which is really incredible. You can go through. We can change out whatever they want, all the temperatures. I mean this is a fully functioning vehicle; it’s not just a pusher. That’s what they call it in the automotive world; they just push and it doesn’t move.”
In June Bloomberg published a piece indicating that contrary to Trevor’s claims, the truck was in fact not completed. Trevor responded by claiming that he never said the truck was completed. He then threatened to sue Bloomberg.
Nikola One Presentation Tricks
Trevor had H2 stenciled on the truck despite the fact that the Nikola One was built with natural gas technology.
The truck could not power itself nor drive off the stage. An electric cable was snaked through under the stage to power the displays in the cabin. Some pages on the displays were even pre-loaded. These static pages seem to have given Trevor trouble while demoing the only part that was functional about the truck after the presentation.
In January 2017 a series A round raised capital for Nikola. And on the back of the hype from the unveiling of the Nikola One, it seems that Bosch and other fuel cell and hydrogen companies jumped on the opportunity and signed partnerships with Nikola.
To the surprise of people involved with the Nikola One, development on the truck didn’t continue after the show. It seems that the goal of the show was to attract more investors and partners, who would in turn build the truck for Nikola.
Nikola One Rolling down a hill
In 2018, with skepticism already mounting after the Nikola One December 2016 show, Nikola released a video titled “Nikola One In Motion”. The video showed the truck in motion on a level road with a fairly high speed.
In reality, sources from within the company later revealed to Hindenburg that the truck was actually towed to the top of a big hill, and allowed to roll down.
It seems Nikola scouted a 2 mile stretch of road with a consistent 3 percent grade, which was sufficient to get the truck rolling down the slope of the hill. The camera position was such that no slope was betrayed to the viewers, and the impression of a fairly level road was given.
Hindenburg rolled a vehicle in natural down the same hill and reached a speed of 56 mph while rolling for about 2.1 miles.
The video had the desired effect. Although Nikola One prudently didn’t say that the Nikola One truck was powering itself, industry publications described the footage as ‘road testing’.
A week after the video was released, Nikola held a ceremony to celebrate a deal to build a manufacturing facility in Arizona.
Trevor Claims Nikola Headquarters completely off the Grid, with 3.5 Megawatts of solar panels installed on the roof
A large installation of solar panels on its roof was claimed to fully power the Nikola headquarters. A simple satellite image pulled from Google Earth by Hindenburg and dated August 2019 and January 2020 showed no solar panels installed on the Nikola Headquarters roof. The lack of panels was corroborated by local media.
Nikola announces “Game changer” Battery prototype
On November 19th, 2019, after a series of teaser tweets by Trevor, Nikola announced they had achieved a “game-changing” battery cell technology.
Trevor estimated the new technology to be worth hundreds of billions of dollars. In reality, Nikola signed a letter of intent to acquire the battery technology for $56.5 million.
Nikola later learned the president of the battery company they intended to acquire had been indicted months earlier after using his Nasa expenses account to pay for prostitutes. Nikola sued the company.
It turns out Nikola had already come to understand that ZapGo’s claims about their Battery technology were highly questionable in December 2019. This didn’t seem to stop Trevor from hyping the technology on twitter in February 2020. Nikola formally terminated the agreement with ZapGo on February 26, 2020. The “game-changing” battery technology has not been discussed since.
Nikola Goes public, questions about Battery technology remain
A reverse merger via a SPAC on June 4th was the process through which Nikola went public. Retails investors, most likely excited on the back of the numerous claims and promises Nikola has been making, caused the stock to jump. Trevor Milton became a billionaire overnight.
Upon going public, it seems Trevor immediately went full defense-mode. Short sellers and journalists were lashed out at, with some even facing the threat of litigation.
Nikola director of Hydrogen production/infrastructure was Trevor Milton’s brother
For Nikola to be financially viable, a network of hydrogen stations would have to be built to support its long haul hydrogen trucks.
In December 2019, Trevor Milton already claimed to be producing 1000kg of Hydrogen a day on-site at the Nikola Pheonix headquarters. When pressed in July 2020, Trevor acknowledged Nikola was not producing hydrogen at all.
“OK, so for the record: You’re currently producing no hydrogen but you’re planning to produce 1 metric ton/day using 100% solar energy by the end of the year? What are you going to use it for by then?”
“The permitting process of producing hydrogen takes much longer than storing and pumping it. We spent the last year building the largest hydrogen station in the western world in Phoenix, AZ at our HQ. Now we will spend the next 5 months installing the hydrogen production (Electrolyzers, Power Electronics, Thermal, Etc.) into that station.”
And the person responsible for developing Nikola’s hydrogen production was none other than Trevor’s brother, who seemed to have no experience with hydrogen at the time. From digging into Travis Milton’s past, Hindenburg Research discovered that he had worked as a construction contractor pouring concrete in the past.
The lack of any expertise with hydrogen didn’t deter Trevor from hiring his brother for a key role in Nikola, and from granting him with stock that amounted to hundreds of millions at the time Hindenburg Research released their findings.
Trevor claimed in 2020 that Nikola made their inverters in-house
Nikola had always made claims that its components were developed in-house. As Hindenburg Research has shown, however, Nikola’s early history seemed to tell a different story.
With the company going public, skepticism grew and questions were asked on what actually Nikola developed in-house. To these skeptics, Trevor would respond “All the technology, software, controls, E axle, inverters etc we do internally”.
As it turns out, the inverters were not actually proprietary technology to Nikola. Cascadia Motors, a small company in Portland offered such inverters off the shelf. It seems Nikola just masked the label on the inverter during videos.
The report by Hindenburg Research is extensive and long. I highly recommend reading it in full. Hindenburg Research brings forward strong evidence to support their claims.
I only wrote about the points that were most striking to me to help understand what unfolded with Nikola behind the scenes.