By Steve Tepper, CFP®, MBA
In 2015, the world was on the precipice of a great leap forward: A rapid technological advance that would change the transportation industry forever. Or so it may have seemed at the time.
Failed entrepreneur Trevor Milton, an entrepreneur with an impressive record of three failed businesses by the age of 33, formed Nikola Motor Company that year and introduced an ambitious plan to produce hydrogen-powered tractor trailers and 700 fuel stations across the country.
The company unveiled three sharp-looking prototypes starting in 2016, along with lots of proprietary vehicle parts like engines, spark plugs, and rims. Prototypes for other vehicles ranging from pickup trucks to jet skis soon followed.
Nikola claimed they had quickly received more than $2 billion in pre-orders for their electric cargo truck (without having produced a working model), but as they didn’t require any cash deposit, all those orders equaled $0 in revenue.
Next up for Nikola was the release of a video showing a fully operational hydrogen-powered truck driving down an empty, flat stretch of highway.
Nikola’s IPO (initial public offering) came just last year, and investors were happy to throw massive cash at what looked like the next Tesla, resulting in a company valuation of $34 billion, higher than Ford or Nissan.
Just as Nikola hit the highest of highs, the wheels fell off (pardon the pun). Hindenberg Research, a market research company, discovered that the slick video of the operational truck was fake.
The truck had been rolled down a hill in neutral, and the camera angle adjusted to make the road look flat. They also discovered that the vehicle parts Nikola had presented as in-house designs were from other manufacturers. Apparently, nobody noticed the duct tape hiding other companies’ logos!
There were some problems with the senior executives’ bios as well. Their director of hydrogen production (would we agree that’s a key job in a company that produces hydrogen-powered vehicles and builds hydrogen-fueling stations?) was Trevor Milton’s brother, a former construction worker. Their chief engineer was a pinball machine repairman, and the head of infrastructure development was a golf course manager.
I’m not knocking construction, repair, and country club jobs. It’s just a matter of the credentials of the executive staff at a $34 billion high-tech company that had yet to make a single sale. Nobody seemed to have the first qualification for the position they were in.
As Hindenberg released their findings to the public, Trevor Milton stepped down as CEO but not without pocketing $3 billion in stock. He could use that money to build a good legal team—he’s been indicted on multiple counts of securities fraud, and his company is involved in shareholder civil suits also alleging fraud.
If you got into Nikola at its peak, you’re probably not happy with current performance. It’s down about 85% from its high last June, but good news may be on the horizon: Going into 2021, the company was optimistic they could hit a sales goal for the year of … 100 trucks!
No, that’s not a typo. I didn’t mean 100,000 or 1 million. One hundred. And they’re a little off track on that, having sold (as of last quarter) zero. Still not a penny of revenue for the company. Maybe fourth quarter, or 2023, depending on which press release you read.
My final thought on this story is an all-too-familiar one. When you think about all the so-called “smart money” that flew to Nikola right out of the gate—venture capitalists, market analysts, people who would be best positioned to see the fraud but didn’t—it makes the folly of stock picking all the more apparent. The experts do a rotten job … what chance do the rest of us have?