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Allegations of deception dog Nikola’s lofty aims

As strobe lights illuminated an old railroad shed on the outskirts of Turin, Trevor Milton took the stage. It was December 2019 and the founder of young truck maker Nikola was enjoying the proudest moment of his life by unveiling an investment from CNH Industrial.

Exploded by the Nikola TRE electric truck, he described how “we now have ready-made production lines”.

There was only one problem: it was not true. Almost a year later, the assembly line at the Iveco factory in the German city of Ulm is still not complete and the prototypes are being built by hand. Completed Nikola trucks will not be manufactured until the final months of 2021.

Mr Milton’s number of false claims became the talk of investors around the world after a short seller’s report alleged Nikola was a “complex fraud”.

The United States Securities and Exchange Commission and the Department of Justice are now look in the company, a stock market sensation that this summer surpassed Ford in value without having sold a single vehicle.

Interviews with more than a dozen business partners, investors and former and current employees paint the portrait of a company whose noble ambitions are not up to the state of its development, and whose founder will say almost everything in pursuit of his dream of “revolutionizing transportation”.

On Wednesday, Jeff Ubben, founder of the US hedge fund ValueAct and long-time investor and member of the board of directors of Nikola, told the Financial Times the group was fundamentally misunderstood, with critics focusing on truck production rather than seeing the company as a supplier of hydrogen.

Last week, before the brief report came to light, Mr Milton described his business as “a hydrogen technology infrastructure game” that aimed to make the most of its money by selling fuel. fuel for its vehicles.

“You will make a lot of money selling trucks, but you will make five times as much if you include hydrogen,” he told the FT, estimating that Nikola would make “nearly $ 1 million per vehicle” at starting at a sale price of $ 300,000 and hydrogen for life. supply valued at $ 400,000.

Several people have described the company as a “systems integrator,” combining technology from other companies into one vehicle – which would make it more like a traditional automotive group than a daring tech pioneer.

An engineer at the company said it mostly uses “off-the-shelf technology” and “isn’t doing anything significant in the battery world, other than maybe buying some pretty decent ones.”

The company has patented technology for hydrogen, according to several people.

While the Hindenburg Short Sellers Report Criticized that key roles in hydrogen are held by Mr Milton’s brother and the golf club’s former general manager, several investors said they were influenced by the team’s pedigree, which includes the vice president executive Jesse Schneider, who previously worked at BMW.

Mr Milton said this summer the company had reduced the price of producing hydrogen from $ 16 per kilogram to less than $ 4.

A former employee said Nikola did not achieve this goal, although he was optimistic he would in the future.

Waterfall diagram showing Nikola's expected cash generation for one of his FCEV trucks in the thousands of dollars

When Nikola struck a deal with General Motors to build their Badger pickup, the couple opted for GM’s hydrogen system rather than the startup’s.

Mr Milton told the FT it was because GM’s own technology was “out of the box”.

Pressed for what Nikola is bringing to the $ 2 billion deal, he listed over-the-air software updates, the infotainment system and “everything very, very tricky.” But he stressed, “The bulk of the heart of vehicles is our intellectual property.”

Such vagueness over Nikola’s technology drew comparisons with Theranos.

Before collapsing amid multi-billion dollar fraud allegations, the blood testing startup courted partners with members of its board of directors and investors, including Henry Kissinger, Rupert Murdoch and the founder Oracle Larry Ellison. It seemed like every new investor or client assumed the others had done their homework.

Several people who defended Nikola in the hours following Hindenburg’s allegations cited his partners and shareholders – Mr Ubben and Bosch were the first investors, while GM’s partnership bore a manufacturer’s seal of approval high-level automobile.

A Nikola document representing the Badger pick-up © Nikola

Nikola own first defense was that the company “has been endorsed by some of the world’s most credible companies and investors.”

Mary Barra, the boss of GM, this week defended the investment.

“Our company has worked with many different partners and we [have a] very, very competent team that did the proper due diligence, ”she said at a conference, declining to answer specific questions about the allegations against Nikola.

Nikola had discussions with several automakers before signing with GM. Discussions with Fiat Chrysler over making the Badger fell apart this year, according to four people familiar with the talks.

Discussions with GM have started for Nikola’s purchase of hydrogen fuel cells, and talks have broadened to include the manufacture of the Badger, two people said.

Mark Russell, chief executive of Nikola, likened the company to Tesla’s spontaneous attitude, telling the FT that his partnerships showed Mr. Milton “was looking for help. . . he didn’t think he knew everything, that he could do it alone “.

However, not all of the company’s mergers have been successful.

Net loss attributable to common shareholders column chart (in millions of dollars) showing Nikola's loss years

Last October, she signed a letter of intent to buy British start-up ZapGo. But after finding out that the president of the company had previously been charged with billing prostitutes into his expense account while working for a NASA-funded lab, Nikola unplugged the plug. ZapGo collapsed into administration this year.

But there was a bigger problem: ZapGo’s technology.

Volta Energy Technologies, the venture capital firm led by Jeff Chamberlain, former head of the US government’s largest battery lab, was “hard and quick” to invest in the company last year.

Less than three weeks after signing the ZapGo deal, Nikola trumpeted “the details of its new battery,” which would double the range of electric cars to 600 miles. On Monday, he said a deal with a university was the source of the battery, not ZapGo. But the battery breakthrough has not yet appeared.

“What do they technically have?” Said Mr. Chamberlain. “As far as I know, nothing. And if they do, they should tell people about it.

Attention inevitably turned to Mr. Milton, at the center of the brief report.

A past company called dHybrid that outfitted trucks to run on a mixture of diesel and clean natural gas has been sued by its biggest customer after failing to deliver even half the number of working prototypes promised . A potential $ 200 million deal evaporated with the lawsuit.

DHybrid investors lost money, a former FT business partner said, describing Mr Milton in extremely critical terms.

Stakeholders noted Mr. Russell’s calming presence as a backlash to Mr. Milton’s boiling.

“He’s a very strong operator, there were some very healthy checks and balances between the two,” said one investor. “If Trevor has 100 ideas,” Russell said, “let’s do those 10 really well.”

Mr. Milton told his Twitter followers on Friday that he was shutting down the messaging service following a legal opinion, only to post four times later in the evening, saying he was “pissed off” by the allegations.

However, he now seems to heed the advice of several friends to show more restraint. He has tweeted only twice since Sunday.

Despite the multitude of personal attacks and allegations of years of deception, nothing has been done within the company to fire Mr. Milton, who is considered one of the company’s greatest assets. .

But as one person who knows the two men put it: “The world needs more people like Trevor, but Nikola needs Mark Russells to keep trains running on time.

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