Credibility Of Report Criticizing Nikola Motor Company Is Questioned

Published: Wednesday, September 16, 2020 - 12:40pm
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STEVE GOLDSTEIN: Valley-based Nikola Motor Company has been grabbing significant attention lately — from its plans to produce electric semi-trucks that are autonomous to its recent agreement with General Motors that would see the companies teaming up on a line of pickup trucks. And the most recent splash came when a forensic financial research firm called Hindenburg strongly criticized Nikola with a report entitled 'Nikola: How to Parlay an Ocean of Lies Into a Partnership with the Largest Auto OEM in America.' Observers have pointed out that Hindenburg specializes in short-selling securities, meaning it could possibly benefit financially from its report's criticism. To learn more, I'm joined by Ben Foldy. He's a reporter for The Wall Street Journal. Ben, how much do we have to factor in the short-selling component of Hindenburg here as it relates to Nikola?

BEN FOLDY: As long as you understand that — you or anyone understands that — you know, it's there, it's in their financial interests for the stocks to go down and read, read the dossier with that in mind, I think that's, you know, and they make that disclaimer very clear in their dossier. You know, it's all's fair in love and shorts, I believe is their take, kind of.

GOLDSTEIN: From that then, should we be surprised in any way that Trevor Milton would respond the way he has? Is this the most blatant, obvious example of criticism the company has faced from, from someone that's been following them as closely as Hindenburg has?

FOLDY: So there was an article earlier this summer that, that kind of, I would say, maybe fired the first shot in some of what Hindenburg has followed up on here. Bloomberg ran a story reported at Ludlow, ran a story, I believe, in June, maybe July, basically alleging that when Nikola first showed off a truck in — at the end of 2016, that that truck wasn't fully operational and that, you know, despite, you know, according to the article, Trevor Milton saying, you know, at the event a number of times and various length — in various ways that the truck was fully operational. And I think what's interesting now is that, you know, Trevor Milton's pushed back very hard on this short-sellers' report. But also when that article came out back in June, he basically said that at Ludlow, the reporter at Bloomberg should be fired. That's a very aggressive reaction for a, for a legitimate outlet like that. And, and there wasn't quite any disputation of the facts in that article. So I think, I think Trevor has earned a reputation and probably deserved one for it for coming after critics extremely vociferously.

GOLDSTEIN: Could you characterize how much of a player Nikola actually is? And how you see it, and what they would have to do in order to become even, even more so? And I'm just, just throwing out the comparison — we all, of course, have heard about Tesla so much.

FOLDY: I think it's an interesting question because it's, this is very much a question of the future. Nikola hasn't made a product and doesn't expect to make a product for at least a couple of years. So when you say something like, is Nikola a big player, that's really a question of, do you think that Nikola can compete in a space in the future? They're not a big player in the realm of, you know, business conventionally thought of as, you know, buying and selling of a material thing. But the, the business that they're looking to break into, I mean, I think, I think this is one of the important things about Nikola is that they get a lot of attention for this pickup truck that they, that they plan to build and that they said they're going to build with GM. But in reality, a lot of their business, maybe more of their business probably is more in the heavy duty trucking side. So like a semi-truck that you could drive by on the highway. And, and that is definitely a huge market. I mean, you have all these companies, you know, your UPS, your Amazon, you know, making these big pledges towards sustainability for their fleets, and you don't so much have a technology that, that makes that doable for, for the big trucks, you know, which are predominantly diesel. So if you think that that's a huge market opportunity, which it probably is, and you think that Nikola is a market leader in getting into that market soon, in that way, they are a big — they're a big player. But at the same time, you know, it's a bet on the future. It's not, you're not, you're not betting on a company that is selling, you know, X amount of vehicles this year.

GOLDSTEIN: Ben, let's go to this agreement that Nikola reached with General Motors. Some people are calling it an acquisition by General Motors. Others are calling it a partnership. How would you characterize this deal? And how important this is?

FOLDY: The way the deal announced last week is that GM would engineer and build Nikola's pickup truck — a hydrogen battery, electric pickup truck — and then supply, would basically sell to Nikola, batteries and fuel cells for its larger like, highway-driving semi-trucks. And, and in return, it would take an 11% equity stake. And the only reason I want to make that specific is because as far as I can tell, General Motors isn't putting its own money into Nikola.


FOLDY: These are kind of in-kind contributions in return for, for an equity stake. But yeah. So that's obviously kind of the prelude to this report coming out. I think what's also clear is that, you know, I don't think that Hindenburg put all this together in a day and a half before, before, well, after the GM deal came out. It's clear that this was probably long in the works before that. I think they saw the, saw the news value in that report coming out to release it. Same with you noting kind of the big you know, obviously they allude to it in the title. So I think that that played a role as well. But so, just to go back to your question, I think what's interesting with this report is that it does come out right after probably one of the bigger kind of outside validations of Nikola's business. GM's a big name. GM doesn't doesn't do things lightly, presumably, and performed a lot of due diligence on Nikola. And for both parties, I think that that deal is, is substantial. I mean, for, for Nikola, it's basically takes you from being, you know, kind of a startup with a lot of big ideas and a lot of big promises and not necessarily all that much to show for it, to worthy enough concern that, you know, one of the biggest car companies in the U — in the world, and definitely the biggest car company — domestic-based car company — is willing to kind of tie their fortunes to you somewhat for an 11th percent equity stake. So I think it was a, there was a definitely a validation of kind of Nikola's business concept just in in concluding that deal. And I think for GM, you know, GM stock also got a boost from that. And I think that was in part a response to, you know, GM has had — like a lot of automakers — have had a lot of trouble in getting investors interested in their, in their kind of electrification plans against, you know, startups and Tesla. And so I think kind of tying their horse to Trevor Milton's Nikola wagon has also been a bit of a benefit for them. But I think what the short report highlights is the risk, the reputational risk to GM of kind of looking like perhaps they got suckered, I think is, is, is meaningful. So even though they didn't put capital into the deal, I mean, I think if they look like they bet on the wrong horse, to mix way too many metaphors, that would probably not reflect too well on them in the long run.

GOLDSTEIN: Ben Foldy is a reporter for The Wall Street Journal.

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