Nikola stock tanks after its founder resigns on a truckload of fraud allegations
Rev me up when September ends... Six-year-old electric truck startup Nikola is having a wild month. Barely a week ago, GM announced it's dropping $2B for an 11% stake in the freshly IPO'd startup. GM will also be producing Nikola's trucks, and Nikola stock soared 40% (because: Nikola hasn't actually sold a vehicle yet). Then things went from 100 to 0 real quick:
- Bad: Short-seller Hindenburg Research dropped a 67-page report accusing Nikola of exaggerating the readiness of its e-truck tech, calling it "an intricate fraud." Nikola and founder Trevor Milton say the allegations are false.
- Worse: SEC regulators and the Justice Department started investigating whether Nikola misled investors.
- Worst: Yesterday, Milton resigned as Executive Chairman on the fraud allegations. Nikola stock tanked 19%. GM dropped 5%.
Dude, where's my e-car?... Apparently, rolling down a hill. As one of its callouts, Hindenburg said a promo video showing a Nikola semi-truck prototype traveling on a road was fake. Turns out, the truck was simply rolling down a hill — aka: not moving itself. Nikola's response: "Nikola never stated its truck was driving under its own propulsion in the video." It simply described it as "In Motion." Trueee.
Is Nikola the next Theranos?... First, we should note that Hindenburg has a direct interest in Nikola's stock plunging. It's a short-selling firm, so it's literally putting money on Nikola failing. Also: GM likely did some real due diligence before investing. But Theranos also managed to raise huge sums from investors before its products saw the light of day — that story that ended with a massive fraud. We don't know if the Nikola allegations are true, but the founder's resignation isn't an inspiring sign.