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Trevor Milton, founder and executive chairman of Nikola, resigned after an investment fund accused him of making false asserti
Trevor Milton, a college dropout, turned his entrepreneurial visions into Nikola, a start-up aiming to develop long-haul semi trucks powered by hydrogen and electricity. General Motors was so taken with the idea that it took a $2 billion stake in the company, even though it essentially has no revenue and has not produced a single truck.
But Mr. Milton’s ascent has come to an abrupt end. On Sunday night, Nikola announced that he had resigned as chairman amid allegations that he had deceived investors about the company’s technology.
His departure followed a report by the investment fund Hindenburg Research on Sept. 10 accusing him of making numerous false assertions about Nikola’s technology, including producing a video in which a truck was rolled down an incline to make it look as if the company had developed a working prototype.
Hindenburg, a short-selling firm that said it was aiming to profit by betting Nikola’s share price would go down, called Nikola “an intricate fraud.” Its report appeared two days after the company and G.M. agreed to cooperate on production of battery-powered pickup trucks and hydrogen-powered heavy trucks.
ons about his company’s technology.
Nikola, based in Phoenix, called the accusations by Hindenburg “false and defamatory” and said it would complain to the Securities and Exchange Commission. Nikola shares, which had jumped after the deal with G.M., fell sharply after the Hindenburg report. On Monday, the shares lost 19 percent, closing at barely half their value after the G.M. deal was announced.
Bloomberg News reported last week that the S.E.C. was looking into the Hindenburg allegations against Nikola, and The Wall Street Journal reported that the Justice Department was doing so. Neither agency has confirmed that an investigation is underway.
Mr. Milton said in a statement that “the focus should be on the company and its world-changing mission, not me. So I made the difficult decision to approach the board and volunteer to step aside.”
Stephen Girsky, a former vice chairman of G.M. and a member of Nikola’s board, will take over as chairman.
While denying Hindenburg’s accusations, Nikola acknowledged that a 2017 prototype truck that appeared in a promotional video was not operating under its own power. “Nikola never stated its truck was driving under its own propulsion in the video,” the company said in a statement. Nikola said it had since built fully functional models.
The deal with G.M. held the prospect of providing crucial help in assembling a pickup truck that Nikola hopes to introduce by the end of 2022. In exchange, G.M. took an 11 percent stake in the company.
G.M. on Monday affirmed its resolve to go forward with the deal. “We will work with Nikola to close the transaction,” the company said in a statement. “Our overall goal is to put everyone in an E.V. and accelerate adoption.”
Analysts have been predicting that traditional carmakers like G.M. would form partnerships with fast-moving electric car start-ups in order to catch up with Tesla, which has a considerable lead in battery technology. G.M.’s deal with Nikola illustrates the hazards of that approach.
[The turning point for electric cars is arriving ahead of schedule, with battery technology advancing faster than expected.]
Whatever the state of its technology, few companies have experienced Nikola’s meteoric rise. Mr. Milton, 39, started a security alarm business and then a company that sought to convert diesel engines to run on natural gas before it ran into legal trouble and was sold. In 2014, he founded Nikola with a plan to produce zero-emission semi trucks that run on hydrogen fuel cells and batteries.
His ambitions mirror those of another company that aimed to shake up the automotive industry: Tesla. Mr. Milton even drew on the same source for his company’s name — the inventor Nikola Tesla, who achieved breakthroughs in electric motors in the late 1800s.
Mr. Milton unveiled a semi truck, called the Nikola One, in 2016, and said it was operational. “It’s not a pusher,” Mr. Milton said at the event, using an industry term for a mock-up vehicle that cannot be driven and must be pushed.
In its report, Hindenburg Research contended that the promotional video showing the moving 2017 prototype and Mr. Milton’s statements were part of “an ocean of lies.” It also accused Mr. Milton of claiming Nikola had proprietary technology when it sourced components from suppliers.
Hindenburg’s founder, Nathan Anderson, declined to say how much money his company had put into shorting Nikola shares, or how much it had made since the report was released.
Hindenburg has a track record of uncovering investment funds and companies whose numbers don’t add up. In some cases, the discoveries have led to resignations by senior executives or investigations by regulators.
Last year it wrote a report questioning accounting methods used by Bloom Energy, a producer of fuel cells that generate electricity, and the company ended up restating earnings from 2016 to 2019. After Hindenburg asserted in 2018 that Yangtze River Port and Logistics, a Chinese company, was a sham, its shares were delisted from Nasdaq.
“If someone is lying about a product working when it doesn’t, or a product being complete when it isn’t, that seems like fraud,” Mr. Anderson said. “I think investors deserve honest answers on what they’re actually buying into.”
In a lengthy written rebuttal to Hindenburg’s claims, Nikola acknowledged that the truck shown in the 2017 promotional video was not moving on its own. But it said that a semi truck, the Nikola Tre, was being produced in a joint venture with Iveco, the Italian truck maker, and would be available by the end of next year. Republic Services, the trash hauler, has placed an order for 2,500 electric garbage trucks, Nikola added.
Mr. Milton also posted pictures of what he said are five trucks being assembled in Ulm, Germany. “Do these look fake?” he wrote.
The new chairman, Mr. Girsky, has played a critical role in Nikola’s rise to prominence. After leaving the G.M. board in 2016, he started an investment company, VectoIQ, to provide strategic and financial help to automotive technology start-ups. He also created a special purpose acquisition company, or SPAC, that owned nothing but cash and a stock listing. When VectoIQ’s SPAC merged with Nikola in June, Nikola became a publicly traded company and Mr. Girsky joined its board.
Mr. Girsky was also a catalyst for G.M.’s partnership with Nikola. In the past he has said he called on former G.M. engineers to evaluate Nikola’s technology and its business prospects while considering the SPAC merger. When he realized G.M. had developed fuel-cell and battery technology Nikola might be able to use, he put Mr. Milton and G.M.’s chief executive, Mary T. Barra, on contact with each other.
“The initial introductions were made by Steve Girsky,” Ms. Barra said in a conference call to announce the partnership.
The day-to-day running of Nikola is in the hands of Mark Russell, the chief executive, whose ties to Mr. Milton go back several years. Before joining Nikola as president last year, he was chief executive of Worthington Industries, a diverse maker of steel products like tanks for propane, hydrogen, helium and natural gas. Worthington acquired Mr. Milton’s diesel conversion company, dHybrid Systems, in 2014 and also invested in Nikola.
In August, before Nikola’s deal with G.M. was announced, Mr. Russell noted the company’s reliance on suppliers. “We’ve been looking for partners from the beginning,” he told Bloomberg TV. “We are going to be a partner company.”
Before Mr. Milton’s resignation, Sam Abuelsamid, an analyst at Navigant Research who follows developments in electric vehicles, noted that offering bullish forecasts was typical of Silicon Valley start-ups, and that automakers regularly showed early prototypes that are far from production vehicles.
“It certainly seems like Nikola really inherently doesn’t have any technology of note,” he said. “They have a vision and have been going around setting up partnerships with companies that do have the technology and are trying to pull it all together.”
Tesla used a similar formula. Its first model, a two-seat sports car, was made from a chassis, battery cells, electric motors and other components purchased from suppliers.
“What we are seeing with Nikola really doesn’t seem any different,” Mr. Abuelsamid said.
Still, Mr. Abuelsamid said Nikola’s idea of powering and building a network of hydrogen fueling stations had merit.
A purely battery-powered semi, which Tesla is building, would likely have a shorter range than trucks with hydrogen fuel cells and would require a massive battery that could take hours to recharge — downtime that could prove too costly to trucking companies.
“Nikola’s vision actually makes a lot of sense,” Mr. Abuelsamid said. “Whether they can execute on that is entirely another story, however.”