Editor’s Note: Adds additional comment from Osborne
Nikola Corp. (NASDAQ: NKLA) Executive Chairman Trevor Milton is out at the electric truck startup he founded following a brutal report 10 days ago by a short seller of Nikola stock that accused him of lying about the company’s technological accomplishments.
Milton approached Nikola’s board of directors and asked to step aside, the statement said. He was immediately replaced as chairman by board member Steve Girsky, a former vice chairman of General Motors Co. (NYSE: GM) whose VectoIQ Acquisition Corp. led the reverse merger that made Nikola a public company in June.
In its statement, Nikola did not mention the scathing 67-page report published Sept. 10 by Hindenburg Research that accused Milton of lies and deception in past business ventures and in the early days of Nikola.
Short seller wins the day
As intended, Hindenburg caused shares in Nikola to fall in value. A short seller makes money by borrowing shares at a certain price, betting they will fall in value. Then the borrowed shares are sold and repurchased at the lower price to return to their owners. When shares rise instead of fall, short sellers pay a significant premium to the owners to cover the position.
Nikola was trading at about $50 a share following a partnership announcement with GM announced Sept. 8, two days before the Hindenburg report. Milton initially lashed out against Hindenburg, calling the report “a hit job.” He promised a rebuttal within hours that did not arrive for nearly four days.
By the time the official response addressing some of the 53 claims was published a week ago, shares fell more than 40% lower to the high $20s. Reported but unconfirmed investigations by the U.S. Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York made matters worse.
Shares traded nearly 29% lower in premarket trading Monday at $24.33. Milton owns more than 20% of the company’s nearly 400 million shares. He appeared on the most recent Forbes list of 400 billionaires, with an estimated net worth exceeding $3.3 billion.
Nikola’s priorities remain
Nikola plans to begin building heavy-duty battery-powered trucks in Europe in 2021 followed by hydrogen-powered fuel cell Class 8 trucks in 2023. It is also planning a 700-station network of hydrogen fueling stations, each at a cost of $17 million. Its business plan calls for leasing the trucks with the fuel and maintenance for seven years at a price comparable to diesel.
“Nikola is an easy target for investors and the press to pick on given it is pre-revenue, has a complex business model and a boastful CEO,” Cowen & Co. analyst Jeffrey Osborne wrote in an investor note published Sunday.
“We believe the resignation has more to do with attempting to minimize distractions for the company rather than an implicit admission of any guilt alleged in the short seller report,” he said in a note Monday morning.
In the Nikola press release, Girsky thanked Milton for “visionary leadership and significant contributions to Nikola since its founding.
“Trevor saw the possibility of creating an end-to-end zero-emission transportation system when the industry was still in its nascent stages and took action to build the Nikola of today, with world-class partnerships, groundbreaking R&D, and a revolutionary business model.”
CEO Mark Russell said Nikola is committed to delivering on Nikola’s vision for a zero-emissions future.
“Our priorities remain unchanged and, in collaboration with our partners, we are laser-focused on executing on our strategic initiatives and laying the groundwork to become a vertically integrated zero-emissions transportation solutions provider.”
A scrapper on Twitter
A college dropout and serial entrepreneur who founded Nikola in 2014, Milton regularly scrapped with his critics and Nikola detractors on Twitter. His account fell silent last Sept. 14 as the company entered crisis mode. Board members, including Girsky, were made available for damage control with major financial media. Shares staged a small recovery late last week.
Milton’s first Twitter post in a week came early Monday. It was a copy of a letter he wrote to employees, encouraging them to go on without him.
‘In my blood’
“Nikola is in my blood and always will be,” Milton wrote. “You are part of that Nikola family and always will be part of mine as well. I made the decision to step aside. The focus should be on the company and its world-changing mission, not me.”
Whether or not Milton jumped or was pushed out, removing his aggressive social media presence was important, according to Osborne, whose investor note came just hours before the FreightWaves report.
“We remain confident in the [Nikola] model and believe the board should take actions to rein in Trevor Milton, similar to having a ‘Twitter sitter’ for (Tesla Inc. founder) Elon Musk,” Osborne said.
Going public too quickly
Nikola raised hundreds of millions of dollars in cash and in-kind funding in multiple funding rounds and established partnerships with major automotive and technology suppliers before being discovered by Girsky’s special purpose acquisition company (SPAC).
Milton told FreightWaves in April that the failure of office space startup WeWork led to his decision to go public by reverse merger.
At the time, the lesser-known SPAC approach to becoming a public company was getting little attention. In recent months, several electric vehicle startups have entered into agreements with backers who raise money through an IPO. That money and additional funding from purchasers of discounted shares in the IPO, called a private investment in public equity (PIPE), is pledged to the startup, which gets its own ticker symbol when the merger is completed.
Nikola competitors Hyliion Inc., Lordstown Motors Corp. and others are in various stages of SPACs.
Nikola board member and investor Jeffrey Ubben told Bloomberg last week that he regrets pushing for the reverse merger, which brought public security to Nikola before it was ready. Nikola shares jumped to more than $90 a share three days after trading began June 4. They have traded lower ever since.
Souring on SPACs
Milton himself appeared to have soured on SPACs, telling FreightWaves in a Sept. 1 interview that “it’s very hard to make it out alive.
“Most people don’t know the complexity of what goes into it,” he said. “They’re very tough. You’ve got a lot of investors that are making big, big returns, like four or five or 600% every single time. And it’s a money-making machine for investors. And the hard part is a company is left to clean it all up.
“Luckily we have a very good foundation of investors. But a lot of SPACs don’t because they’re only in it for the money.”
Milton’s own fortune exploded through the SPAC. He owned about 35% of Nikola’s private shares that he converted to the public company. On Aug. 26, he gave 6 million of his shares to 40-some early employees. Earlier this month, he gave an additional 1 million shares to 350 employees. The only stipulation at the time was they stay at the company for three years.
“I am working with Legal to make sure that the company honors the set-aside of 1,069,000 shares that were promised to you a few weeks back,” Milton said in his letter to employees. “Legal and HR will be providing documentation on how those are earned.”