Nikola welcomes SEC involvement following 'defamatory' short-sell report
General Motors Co. partner Nikola Corp. on Monday said it welcomes the involvement of the Securities and Exchange Commission in evaluating claims made by a short-sell investor last week.
The statement came after Bloomberg first reported that the SEC has opened a probe to determine whether the Phoenix-based electric and hydrogen fuel-cell vehicle startup violated securities laws. Nikola earlier in the day had called the report from Hindenburg Research "defamatory," but it did not debunk one of the report's most serious claims: namely, that a vehicle Nikola said was functional was not actually self-propelled.
"On September 11, Nikola’s legal counsel proactively contacted and briefed the U.S. Securities and Exchange Commission (SEC) regarding Nikola’s concerns pertaining to the Hindenburg report," a company spokesperson said in a statement. "Nikola welcomes the SEC’s involvement in this matter."
Nikola shares were falling 8% in post-market trading Monday. After Hindenburg's report accusing Nikola of misrepresenting technological and manufacturing capabilities released Thursday, the company lost gains made two days earlier after it announced a 10-year alliance with GM. Hindenburg, which has a short position on Nikola, could stand to profit from decreases in stock value.
Hours ahead of the probe's announcement, GM CEO Mary Barra said that the Detroit automaker had done its "appropriate diligence" in selecting Nikola as a partner and that the agreement "validates" GM's technology.
"It allows us to have more people using the technology, which gives us the advantage of scale, which will help us drive costs down," Barra said during the RBC Capital Markets Global Industrials Virtual Conference. "And then from a fuel cell perspective, using the Hydrotec fuel cell technology, and entering a new segment for us, a growth segment, again validating our fuel cell technology, I think it starts to unlock an all-new growth area for us as it relates to fuel cells.”
Hindenburg's most colorful accusations against Nikola centered around its Nikola One, the startup's first hydrogen fuel-cell semi-truck. While Nikola CEO Trevor Milton publicly claimed in 2016 that the company had a fully functioning version of the truck, Hindenburg points out he later walked back those claims after a Bloomberg report in June found Milton had exaggerated the truck's capability. Hindenburg cited a former employee who alleged the company made a promotional video during which the vehicle merely was "filmed rolling down a big hill."
Nikola did not deny the claim. A third party filmed the commercial in 2017, which only stated the vehicle was "in motion," according to Nikola's statement: "Nikola never stated its truck was driving under its own propulsion in the video, although the truck was designed to do just that."
Gearbox, inverters, batteries and other elements were functional, according to the startup, though Nikola eventually decided to not make the Nikola One drive on its own propulsion and instead began developing the Nikola Two, whose prototypes are self-propelled.
"Nikola investors who invested during this period, in which the Company was privately held, knew the technical capability of the Nikola One at the time of their investment," said the statement from the company that went public in June. "This three-year-old video of a Nikola prototype is irrelevant except for the fact that the short seller is trying to use it for its main thesis. The fact is, Nikola has real working hydrogen fuel-cell powered semi-trucks. Any reports intended to suggest that Nikola’s trucks do not drive are erroneous."
Nikola added in response to Hindenburg's allegations concerning inverters that it does use third-party parts in prototype vehicles, though it says it has been designing and engineering its own that could be used in production.
The startup also claimed the research group mischaracterized a quote by an employee at manufacturing partner Bosch, misrepresented Milton's comments on its battery technology development and linked incorrectly the departure of its chief financial officer to refunding customers who made reservations of the Nikola One. It has briefed the U.S. Securities and Exchange Commission regarding its concerns and retained a law firm to explore legal remedies.
The company's response is "completely inadequate," Hindenburg founder Nathan Anderson said in an email.
"Nikola had previously promised a point by point rebuttal to our report and this morning's press release did not deliver on that promise," he wrote. "In the few areas where the company did respond, it largely confirmed our findings or simply raised new unanswered questions. We will be issuing a detailed response."
There, however, remains opportunity in Nikola, according to some industry observers, who say the company must now put its plan into practice to bring prototypes to production, complete its Arizona factory and lay the groundwork for its charging network. GM, which will hold an 11% ownership of Nikola, supplying its Ultium batteries, Hydrotec fuel-cell technology and manufacturing and engineering capabilities for the electric Badger pickup is a major catalyst, Daniel Ives, Wedbush Securities Inc. analyst, said in a note to investors.
"We continue to believe seeing the forest through the trees that Nikola is a story stock now and it's all about execution looking ahead through 2023," Ives wrote. "... NKLA's mission is to transform the transportation/trucking industry by offering both pure electric and hydrogen electric powertrains which now has a major partner in GM to not just talk the talk but walk the walk."