(Bloomberg) -- Top executives of Nikola Corp. saw billions of dollars in losses ahead from a manufacturing deal with General Motors Co. but backed founder Trevor Milton’s vision for the project anyway, the jury in Milton’s criminal fraud trial was told.
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The testimony, by Nikola Chief Executive Officer Mark Russell, came a day after prosecutors told the court that Russell, along with the company’s chief financial officer and general counsel, found Milton’s hype so risky that the three threatened to resign in 2020 if the founder didn’t step down as executive chairman.
Under questioning by the US on Tuesday, Russell was asked about the GM agreement to build the Badger pickup truck, among other tasks. The government asked him about an email sent in August 2020 in which Chief Financial Officer Kim Brady projected a net loss of $3.2 billion from 2022 to 2026 from the deal. Brady also estimated a cumulative cash flow loss of $4.6 billion for the same period.
“We are projecting massive losses for the company which will NOT be sustainable,” Brady said in the email, reviewed by the jury in Milton’s trial on securities and wire fraud charges.
“The key is we need to charge more,” Milton responded. “Happy to do that initially.”
The board nonetheless approved the plan for the sake of unanimity, Russell, a witness for the prosecution, testified under questioning by the US.
Read More: Nikola CEO Says He Learned Truck Had No Power After He Was Hired
Despite his misgivings, Russell himself voted for the plan, he told the jury.
“Trevor was very much in favor of it, and he was the executive chairman and largest shareholder,” Russell said.
In the end, the Badger never saw the light of day.
Milton is accused of duping investors by making inoperable products look fully functional and of lying about the company’s technology and partnerships. The defense argues he was just following the company’s marketing plan and never said anything he didn’t believe to be true.
Nikola started taking $5,000 reservations for the pickup in June 2020, even though the company had no prototype or manufacturing plan for it at that point. Nikola had hoped to unveil the fuel cell-powered pickup at an event in December of that year billed Nikola World. Instead, the conference was postponed that September, nine days after Milton stepped down from his role as executive chairman, and the GM deal was later scrapped.
Read More: Nikola Cannibalized a Ford for Electric Pickup, Jury Told
Russell testified on Tuesday, in federal court in Manhattan, that the three executives were so worried by Milton’s promises about the company’s progress that they told the board it was either him or them. The board then decided to begin negotiating with Milton to leave.
‘The Robinhood Wing’
Russell said the board met on several occasions following a September 2020 short seller’s report to discuss its allegations against Milton, including convening independently of Milton and the rest of management. He told the jurors that he warned Milton his claims would be regarded as equivalent to official statements or securities filings.
He also recalled a meeting with Softbank Group Corp. in which Milton went off script from the presentation Nikola had prepared. Afterward, Russell said, he and Brady advised Milton he should no longer attend meetings with institutional investors.
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Milton claimed in podcasts in the summer of 2020 that Nikola had succeeded in producing hydrogen fuel for less than $4 a kilogram, making it cheaper than diesel, jurors heard. Asked on Tuesday if the statement was accurate, Russell said no.
“We weren’t producing hydrogen at that point,” he testified.
Russell told the jurors that Milton was overly focused on attracting individual investors, whom he called “the Robinhood wing of the market,” instead of building long-term value.
‘He Was Extraordinary’
On cross-examination, Milton lawyer Marc Mukasey got Russell to agree that Milton was “gifted,” a born promoter and the source of most of the technological ideas the company pursued.
“He was extraordinary,” Russell said. “I don’t know anybody else that could have founded Nikola in their basement.”
Russell confirmed a story in which Milton spent a Thanksgiving interviewing truckers at highway stops when he was contemplating building Nikola.
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Mukasey presented quotes from Milton suggesting he was in fact interested in long-term value, not simply pumping up the daily share price. And Russell agreed that Nikola projected it could produce hydrogen for less than $4 a kilogram and could build charging stations at the costs Milton claimed. Executives besides Milton participated in key decisions, including the one to take the company public, Russell testified under Mukasey’s questioning.
Russell’s Own Pitch
Mukasey closed his cross-examination by showing the jurors a video in which Russell himself promotes a Nikola truck model and shows how to fuel it.
“The only byproduct is water, which is what we started out with when we made the hydrogen in the first place,” Russell says to the camera.
“When you said ‘we made the hydrogen,’ you didn’t mean that Nikola made the hydrogen, did you?” Mukasey asked.
“No,” Russell answered.
“You were not trying to mislead anybody, were you?” Mukasey asked.
“No,” Russell said.
The case is US v. Milton, 21-cr-478, US District Court, Southern District of New York (Manhattan).
Read More: Nikola Founder Milton Faces Jury in His Toughest Sales Job
(Adds Russell’s testimony on hydrogen costs, Milton’s gifts and his own promotion in the last three sections.)
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