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Nikola Versus the Short Sellers Is So Very 2020

Chris Bryant
·5 mins read

(Bloomberg Opinion) -- When Nikola Corp. Executive Chairman Trevor Milton learned last week that his electric and hydrogen truck startup was the subject of a scathing research report questioning the company’s inconsistent claims about its technology and capabilities, he published a brief video defending himself. “The long story short is, none of it even really matters,” he said.

Milton couldn’t have been more wrong. The $5.5 billion in market value that Nikola had added earlier in the week when it struck an industrial partnership with General Motors Co. vanished when investors took fright at the deceit alleged by short seller Hindenburg Research. The shares pared losses in Monday’s pre-market trading after the company published a rebuttal to some of the points raised by Hindenburg.

It’s vital for shareholders to be able to trust the statements Nikola executives make because the company hasn’t sold a single next-generation truck and doesn’t have any meaningful revenue yet. Nikola stock is popular among inexperienced retail investors, and the business model is incredibly ambitious and complex. It spans both the production of electric and hydrogen heavy-duty trucks and pickups, as well as the sale of hydrogen to fuel them.

But in one respect Milton’s defiance actually made sense. Unbridled optimism is par for the course in Silicon Valley, and a bit of exaggeration is tolerated if it helps secure the investment needed to change the world in a hurry. Critics are branded “haters,” shills for entrenched interests or short sellers out to make a quick buck. Couple this with a political culture where facts are malleable, and you have a potentially dangerous blurring of the lines.

It’s precisely Milton’s massive ambition that won Nikola early backing by experienced partners: German auto-parts supplier Robert Bosch Gmbh and Italian truck and agricultural equipment company CNH Industrial NV. Earlier this year, former GM Vice Chairman Steve Girsky’s VectoIQ, a special purpose acquisition company, took Nikola public following a reverse merger. Now Girsky’s former employer GM has joined the Nikola juggernaut, too, in return for an 11% stake.

In other words, whether or not Nikola faked it — something the company strongly denies — it’s now much closer to making it.

Hindenburg says these industrial powerhouses “did not do their homework” before backing Milton. However, all will have done due diligence on Nikola — a point the company stressed in Monday’s rebuttal. And even the most cursory examination will have uncovered two things. First is that Nikola has comparatively little technology of its own, and instead its strength is in integrating innovations from others. In announcing their partnership last week, neither Milton nor GM Chief Executive Officer Mary Barra were able to provide many convincing examples of innovations Nikola would bring to the table.

The second obvious insight would be that Milton is fond of making bold claims about Nikola’s technology, prospects and his own talents, especially on social media. He unabashedly told a recent podcast that Nikola will be one of the top “five or 10 greatest growth stories in American history.”

Amid all the fuss, it’s telling that Nikola’s industrial partners haven’t tried to distance themselves from Milton. Bosch has been a Nikola partner since 2017, and more than 200 of its employees were closely involved in developing critical parts of the truck, including the electric motor for the axle, the vehicle-control unit and the battery. (Milton and acolytes have sometimes glossed over this extensive role in public comments.) Bosch must therefore be aware of what Nikola’s engineers can and can’t do. The same applies to CNH’s subsidiary Iveco, which is providing a truck platform and is handling European manufacturing.

For its part, GM said on Friday that it remains “fully confident in the value we will create by working together.”

And that says it all, doesn’t it? By hitching a ride on Nikola’s coattails, these companies with roots in the has-been world of combustion engines must have hoped a bit of the excitement it generated would rub off on them. Electric-vehicle startups are achieving nosebleed valuations — just look at Tesla Inc.

If Nikola’s latest response doesn’t suffice to win over the skeptics, some of the buzz around the stock could evaporate, making it harder to raise the capital needed to fund the company’s hydrogen plans. But in the end Nikola should be able to deliver at least some of what it’s promised precisely because its partners are doing so much of the work.

In the meantime, it would be wise for Nikola’s board to consider Milton’s limitations as a leader. A college dropout, Milton has conceded he’s more of a “vision guy” and isn’t a fan of paperwork. He was replaced as CEO earlier this year. The board should impress on him that in the long run results speak louder than words, especially those blurted out on Twitter and Instagram.

For investors, there are lessons to be heeded, too. As a slew of inexperienced companies are taken public via SPACs, a process that avoids the kind of institutional vetting delivered by a traditional IPO, other stories similar to Nikola are likely to emerge.

Nikola was, however, obliged to file a prospectus before going public, and in that document it’s pretty clear about the risks and limitations of the business model. It’s a good reminder that investors should pay less heed to outlandish statements made by executives on social media and at product launches, and far more to lawyer-approved statements in regulatory filings.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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