CEO of Electric-Fuel Cell Truck Startup Nikola Corp Resigns Amid Allegations of Fraud
Trevor Milton, the CEO and founder of promising hydrogen fuel cell and electric truck startup Nikola Corp has resigned from the company he founded. Milton stepped down following claims of nepotism and fraud by a Wall Street short-seller that sparked an U.S. Security and Exchange Commission (SEC) investigation.
Shares of Nikola Corp tumbled as much as 30% on Monday after Milton announced he was stepping down from the company he founded and leaving its board.
The company named Stephen Girsky, former vice chairman of General Motors Co and a member of Nikola's board, to take over as chairman, as it strives to regain investors' confidence.
"The focus should be on the company and its world-changing mission, not me," Milton, who owned 25% of the company's outstanding shares at the end of July, said in his resignation letter.
"So I made the difficult decision to approach the Board and volunteer to step aside as Executive Chairman. Founding Nikola and growing it into a company that will change transportation for the better and help protect our world's climate has been an incredible honor."
Nikola Corp went public in June in a reverse merger deal with special purpose acquisition company (SPAC) VectoIQ Acquisition Corp. New York-based VectoIQ is a publicly-traded special purpose acquisition company (SPAC) focused on startups developing technologies such as autonomous vehicles, smart mobility and electrification.
The IPO valued Nikola at roughly $20 billion as the stock more than doubled in the days after it became a public company.
VectoIQ acquired a stake in Nikola and was financially supporting the young startup, so it can expand its operations and fund the construction of Nikola's truck factory in Arizona. Milton's replacement Girsky is also a Managing Partner of VectoIQ.
Earlier this month, U.S. automaker General Motors (GM) announced it was buying an 11% stake in the Nikola and would build the company's electric and fuel cell Badger pickup truck.
Nikola's latest problems began when well known short seller Hindenburg Research published a scathing report just after GM's investment in the company two weeks ago.
Hindenburg Research said it had collected evidence to show Nikola and CEO Milton made false claims about the company's proprietary hydrogen fuel cell technology to form partnerships with large automakers.
Analysts have also criticized GM after its $2 billion investment for not doing the appropriate due diligence in Nikola, although GM said it had.
Hindenburg Research said it gathered extensive evidence, which included recorded phone calls, text messages, private emails and behind-the-scenes photographs detailing dozens of false statements by Nikola founder Milton.
"We have never seen this level of deception at a public company, especially of this size," the report warned potential investors.
Among the evidence are leaked photos of Nikola's fuel cell components, including a power inverter, which the company said were developed in-house, with black tape hiding the interver's manufacturer, which was actually German supplier Bosch.
Bosch is also an investor in Nikola, and the company said in a statement it intends to continue working with the startup.
In addition, a 2018 promotion video for Nikola's fuel cell truck showed it seemingly traveling down the highway, when its was simply rolling down hill as the truck's propulsion system was not engaged or even functional. Nikola finally admitted last week that the truck in the video did not have a working hydrogen fuel cell on board.
Nikola described the video on social media as "In Motion" but weakly defended the video by saying it never claimed that the truck was "under its own propulsion" or "powertrain driven."
A former Nikola employee said that 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 added that investors who invested during this period leading up to the IPO knew the technical capability of the Nikola One at the time of their investment.
"While founder Trevor Milton's departure may give the appearance of a company that's moving on, we believe this is only the beginning of Nikola's unraveling," Hindenburg said in its own statement on Monday, asking GM to reevaluate its deal.
Milton was also accused of nepotism by Hindenburg, alleging that Milton appointed his brother, Travis as Director of Hydrogen Production/Infrastructure, a field he had little experience working in.
Before Hindenburg's report was released, Nikola said it received a flood of orders for its Nikola One & Nikola Two hydrogen-powered trucks over the past two years. Nikola claims the hydrogen-powered trucks produce up to 1,000 horsepower and 2,000 ft-lbs of torque with a 500 to 750 miles range. The trucks are designed for zero emissions, long-haul freight operations.
Last year at an unveiling event called "Nikola World 2019", Milton called the Nikola Two "the most advanced commercial truck the world has ever seen."
Nikola is also developing a smaller truck for the European market called the Nikola Tre which was unveiled in Dec 2019.
The Tre is designed for the European market and Nikola said it includes its advanced electric powertrain technology, including a modular battery system with a total capacity of up to 720 kWh.
Nikola told Forbes last year that it secured $14 billion in commercial truck leases from Anheuser Busch and U.S. Express, each of which is a seven-year lease worth about $1 million. Hindenburg Research has flagged these lease deals as inaccurate.
Brewer Anheuser-Busch placed an order for up to 800 Nikola Trucks in 2018. Nikola said the volume of orders received for the Nikola One and Two were so high that the company had to stop taking orders.
"We're sold out for eight years of production," Milton told Forbes.
Nikola also said that Milton had agreed to give up all of 4.9 million performance-based stock units he was granted last month.
Nikola's unraveling comes as investors pour money in electric vehicle startups, including a U.S. IPO from Chinese EV startup Xpeng Motors in August, a company that's a strong rival to Tesla in China.
Nikola's stock is down nearly 20% on Monday to $27.58 after topping $90 this summer.
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