GM partner Nikola lawyers up after 'hit job' short-seller report
General Motors Co. partner Nikola Corp. shares closed down 14.5% Friday after a short-selling firm accused the Phoenix-based electric vehicle startup of being "an intricate fraud built on dozens of lies."
Nikola on Friday denied the claims and said it has hired a law firm to evaluate legal recourse over the allegations from Hindenburg Research that includes staging videos to make non-functional vehicles appear to operate. Hindenburg owns a short position in the company’s stock, meaning it could stand to gain from a drop in share value.
"An activist short-seller whose motivation is to manipulate the market and profit from a manufactured decline in our stock price published a so-called 'report' replete with misleading information and salacious accusations directed at our founder and executive chairman," Nikola said in a statement. "To be clear, this was not a research report and it is not accurate. This was a hit job for short sale profit driven by greed."
The accusations come days after Nikola's stock spike 41% when it announced a 10-year alliance with GM. The Detroit automaker has agreed to engineer and manufacture Nikola's Badger pickup truck and provide its Ultium battery system and Hydrotec fuel-cell technology for Nikola's semi-trucks in exchange for an 11% stake in the company valued at $2 billion. Hindenburg accuses Nikola's partners of not doing their homework. GM's shares were flat at close Friday.
"GM’s position hasn’t changed," spokesman Jim Cain said in a statement. "We are fully confident in the value we will create by working together. We stand by the statements we made in announcing the relationship."
Hindenburg characterizes the Nikola-GM deal as nothing more than buzzy publicity for GM as it seeks to counter competitor Tesla Inc. in the EV space, and as one in which Nikola "seems to be bringing nothing to the partnership but concept designs, their brand name and up to $700 million they will be paying GM for costs related to production.”
"The real 'value' for GM seems to be branding," the report states. "We believe the legacy automaker simply seeks to latch General Motors’ storied name onto Nikola’s charismatic Founder and Executive Chairman, Trevor Milton. ... But in GM’s attempt to keep up with Elon Musk, who did they just get into bed with?”
The accusations could be harmful for the reputations of both Nikola and GM, said Sam Abuelsamid, emobility analyst for Guidehouse Insights. But GM already has invested into the battery and fuel-cell technology and has its own electric GMC Hummer truck coming.
"If it works out, they're a piece of something that is a good growth story," Abuelsamid said. "Aside from the reputation problem if it all does collapse, there's not a significant downside for GM."
Although an early Friday morning tweet from Nikola CEO and chairman Trevor Milton said he had stayed up all night developing a "clear, factual, low-emotional answer to the report" that would be out before the bell, no such report was released — only a statement without specifics.
The Hindenburg report, citing "recorded phone calls, text messages, private emails and behind-the-scenes photographs," details numerous examples in which it claims Milton has misrepresented Nikola's technological and manufacturing capabilities.
Hindenburg, for example, alleges that Milton repeatedly misrepresented the functionality of the Nikola One, a planned hydrogen fuel-cell semi-truck, then raised money and inked partnerships off its reveal. While Milton publicly claimed in 2016 that the company had a fully functioning version of the truck ready, Hindenburg points out he later walked back those claims after a Bloomberg report in June that Milton had exaggerated the truck's capability.
Citing who Hindenburg claims is a former Nikola employee, the report also alleges Nikola staged a video of the semi-truck driving at high speed: "The video was simply the result of Nikola towing the truck to the top of a hill and rolling it down."
Such measures for promotion, however, are common in the business, Abuelsamid said: "When products are years away from production, things like that are pretty commonplace. Even concept cars at auto shows, they certainly are not fully functional and most cases are barely functional."
Nikola has retained law firm Kirkland & Ellis LLP to explore possible litigation against Hindenburg and the class-action complaints that have followed, according to the company statement. The automaker also is bringing Hindenburg's actions to the attention of the U.S. Securities and Exchange Commission with its own evidence. An SEC representative declined to comment.
"On advice of counsel however, I won’t comment further now other than saying that we have involved SEC," Milton tweeted later Friday. "It is in their hands and i have to let them run their process. I want you to see how I have addressed each point, but it will have to wait to be until the SEC finishes their work. Let's be clear, Nikola approached the SEC, not the other way around. The author wanted emotion and we won't give it to them."
Hidenburg did not respond to The Detroit News' request for comment on Friday, but founder Nathan Anderson told Bloomberg he welcomed the petition to regulators: “We are pleased that Nikola is engaging with the SEC and we are not surprised that Trevor Milton is not commenting further on advice of counsel."
Milton, however, later did follow up on the subject, sharing a tweet with photos of what he says are Nikola trucks on the line in Ulm, Germany.
"Do these look fake?" Milton wrote.
A spokesperson for Robert Bosch GmbH, the company's manufacturing and engineering services partner, told Hindenburg this month it had not made any of the vehicles yet, after Milton in an interview had said production began, according to the report.
Bosch rebuffed the claim: "Specific instances in the report quoting a Bosch employee were taken out of context," the German auto parts supplier said in a statement, noting the employee only had spoken about the company's plans for the IAA industry show and its involvement in the European Union's H2Haul fuel-cell truck acceleration project. "Consistent with our policy regarding customers, Bosch refers any questions about Nikola to Nikola."
Hindenburg — named for the hydrogen-filled airship disaster of 1937 — has a history of research scrutinizing public companies. Following some of its other articles, Bloom Energy issued a restatement of four years of financial reports, Aphria Inc. leaders resigned, PolarityTE's chief financial officer was charged by the SEC and other companies have lost significant value, according to its website.
Last month, Sorrento Therapuetics Inc. demanded the firm cease and desist claims of "false and/or misleading statements," according to the company, after Hindenburg accused it of making "sensational" claims on a possible COVID-19 treatment.
Other automotive startups, especially Silicon Valley electric vehicle maker Tesla Inc., have faced scrutiny from short-sellers. Nikola is the 11th largest shorted stock worldwide in the auto industry with $532 million in short interest, S3 Partners managing director Ihor Duysaniwsky wrote.
Nikola short sellers are down $253 million in net-of-financing mark-to-market losses since it went public in June, but the sell-off Thursday following the Hindenburg report created $51 million in profits for the short sellers, Dusaniwsky said. It also returned them to the black for September at a $36 million overall profit.
"We respect the rights of investors and the integrity of the market and will be back to you after we have advanced the process with the SEC," Nikola's Friday statement said. "Most importantly, Nikola remains focused on delivering on the promises we’ve made to our stakeholders.”