Resignation of Nikola founder could help keep EV deal with GM on track
With General Motors Co.'s former vice chairman replacing Nikola Corp.'s founder amid allegations of fraud, the electric- and hydrogen-powered truck startup now may be better equipped to act on its goal and $2 billion partnership with GM, according to analysts.
GM shares fell 4.8% Monday, while the Phoenix-based startup's plunged 19.3% after the resignation of Nikola's executive chairman Trevor Milton, who has been accused by a short-seller of misleading investors on Nikola vehicles' capabilities and technology. Stephen Girsky, who held numerous roles at GM from 2009 to 2014, takes over immediately as chairman.
"The focus should be on the Company and its world-changing mission, not me," Milton wrote in a statement posted on Twitter. "I intend to defend myself against the false allegations leveled against me by outside detractors."
Milton's departure, GM said in a statement, will not prevent the work being done to close Nikola's deal with GM to form a 10-year alliance under which GM licenses its battery and hydrogen fuel-cell technology to Nikola and will engineer and builds its Badger electric pickup. Girsky, a member of Nikola's board, made the first introductions between the two companies, GM CEO Mary Barra said when the deal was announced two weeks ago.
Girsky, 58, joined Nikola's board in June when the publicly traded blank-check company he leads and partly owns, VectoIQ Acquisition Corp., combined with Nikola. He has assisted troubled automakers before, helping to lead GM out of its financial crisis in 2009 and overseeing a restructuring of its German unit. He was on the shortlist to replace Dan Akerson as CEO in 2013 when Barra was chosen, departing the Detroit automaker shortly after and leaving the board in 2016. Girsky did not respond to request for comment, but he previously addressed his commitment to Nikola.
“We showed up with an army of people to due diligence on this thing,” Girsky said on an Aug. 2 webcast of "Autoline This Week" about VectoIQ's investment in Nikola. “I don’t doubt there are going to be twists and turns here, but I did put my reputation on the line for this deal.”
The accusations against Nikola in a report from Hindenburg Research released Sept. 10 do not involve GM, though it calls into question whether the Detroit automaker did its homework. Hindenburg, which has a short position on Nikola, could stand to benefit from decreases in its stock price. Barra during an investor conference last week said GM did "the appropriate diligence" and that the deal validates the company's technology.
Nikola's valuation that within a week of going public had skyrocketed to $30 billion — greater than Ford Motor Co.'s even before building a vehicle — is "an intricate fraud built on dozens of lies," Hindenburg wrote in the report two days after the GM-Nikola partnership was announced. It referenced a video that provided the impression of a functioning vehicle that actually was just rolling down a hill. Although Nikola said that semi-truck prototype was not self-propelled, the company has called the report "defamatory," hired a law firm to explore legal recourse and welcomed involvement by U.S. securities regulators into the matter. The U.S. Justice Department also reportedly is probing the situation.
"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," Karl Brauer, executive analyst for automotive research site iSeeCars.com, said in a statement. "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."
GM in its statement on Monday de-emphasized the significance of Nikola's role in its electrification effort: "Nikola, Honda and other companies who are looking to GM’s technology as a platform for their products, represent just one part of our overall EV strategy. Our overall goal is to put everyone in an EV and accelerate adoption."
The partnership with Nikola represents little additional investment for GM with it already developing the vehicle platforms that Nikola will use, said David Cole, chairman emeritus for the Center for Automotive Research in Ann Arbor.
"It's a no-brainer for GM," Cole said. "The perspective from Nikola is that they have to make a business case that they can make these trucks and sell them competitively with others in the business and compete with internal combustion vehicles."
Girsky, who was a top autos analyst with Morgan Stanley before joining GM, gives Nikola credibility in being able to do that, Cole added.
He may also provide a more measured approach, as well, analysts noted. Milton, 39, is known for tweeting frustrations and respondings to naysayers on social media; Mark Rusell replaced him in June as CEO when the company went public to provide a calming influence.
"We see the departure of Mr. Milton from the equation as a positive," Jeffrey Osborne, Cowen Inc. analyst, said in a note to investors. "Hopefully this will minimize the drama in the weeks and months ahead as the company moves forward with the development of its all electric and fuel cell Class 8 trucks and related infrastructure as well as works to close the deal with General Motors."