Nikola Confronts Future of Doubts on Chair Exit, Stock Drop

(Bloomberg) -- Nikola Corp. faces an uncertain future following the sudden departure of its founder and chairman in the wake of regulatory probes and a collapse of its stock price, even as partner General Motors Co. said it won’t abandon the electric-truck startup.

Trevor Milton stepped down as executive chairman effective immediately and was replaced by Stephen Girsky, the former GM vice chairman who oversaw Nikola’s stock listing and helped broker their partnership. Nikola’s shares -- already reeling from claims of deception leveled by short seller Hindenburg Research -- plunged as much as 30% at one point, its steepest drop ever.

Shares of Nikola closed down 19.3% to an almost four-month low of $27.58. GM fell 4.8% to $30.00.

“Nikola is truly in my blood and always will be, and the focus should be on the company and its world-changing mission, not me,” Milton said in a statement. “So I made the difficult decision to approach the board and volunteer to step aside.”

The shakeup raises questions about Nikola’s fate without its charismatic 39-year-old founder, who was the public face of the company and the architect of its key strategic projects. In its prospectus to investors, the company said it was “highly dependent” on him: “Mr. Milton is the source of many, if not most, of the ideas and execution driving Nikola.”

Analysts said Nikola must rebuild its credibility with Wall Street after a steady drip of negative news about the company.

“Trevor stepping down voluntarily at Nikola will be perceived by the Street as a major near-term gut punch for the company’s lofty EV ambitions as he plays a key role strategically in driving the company’s vision,” Dan Ives, an analyst at Wedbush Securities with a “neutral” rating on the stock, said in a note to clients Monday.

More responsibility now falls to Chief Executive Officer Mark Russell, 58, and Chief Financial Officer Kim Brady, 56. In a debut earnings call in August, Russell and Brady faced investors without Milton and took the lead in media interviews. Both have been on a charm offensive during the past week, making appearances on analyst calls and virtual conferences to defend the company.

Prior to becoming CEO in early 2019, Russell served as chief operating officer and president of Worthington Industries Inc., an early investor in Nikola. He has no experience working at large automakers but headed Worthington’s steel-processing unit at one point. Brady was a managing director at SOLIC Capital Management, an investment banking and restructuring advisory firm, where he is still listed as an “emeritus senior advisor.”

Some analysts viewed the reshuffling as a positive catalyst. Jeffrey Osborne at Cowen & Co., who has an “outperform” rating on Nikola, wrote in a research note that Milton’s resignation is an effort to minimize distractions rather than an admission of any wrongdoing. “We would view this weakness as a buying opportunity, but acknowledge it may take a few days for the dust to settle.”

GM Backing

The worsening stock rout also is a blow to GM, which agreed to take an 11% equity stake in Nikola earlier this month. While GM Chief Executive Officer Mary Barra obtained the holding by agreeing to help Nikola bring its Badger electric pickup to market and without spending any cash, she’s had to defend her company’s due diligence on the deal.

The Detroit-based company said Monday it would continue to finalize its agreement with the startup after Milton’s departure. “We will work with Nikola to close the transaction we announced nearly two weeks ago to seize the growth opportunities in broader markets with our Hydrotec fuel cell and Ultium battery systems, and to engineer and build the Nikola Badger,” it said in a statement.

The resignation marks a remarkable fall from grace for Milton, a college dropout whose fortune soared when he took Nikola public through a reverse merger in June. He agreed to relinquish stock units that were worth about $166 million as of Friday’s close and also gave up his board seat at Nikola, which has yet to generate any meaningful revenue.

Hindenburg Research, a firm that owns a short position in Nikola’s stock and stands to gain from a decline in the share price, said Sept. 10 that Milton and Nikola deceived investors about its business prospects -- claims that are now the subject of inquiries by the U.S. Securities and Exchange Commission and, reportedly, the Justice Department. In a statement released on Twitter, Milton vowed to defend himself against “false allegations” made by “outside detractors” he didn’t identify.

Hindenburg said Monday that Milton’s resignation is not enough to salvage the company. “We believe this is only the beginning of Nikola’s unraveling,” it said in a statement. “General Motors should carefully evaluate the potential long-term damage to its 112 year brand by continuing to tie itself to Nikola.”

Shrinking Fortune

Nikola’s stock soared after the company went public following a reverse merger with a special-purpose acquisition company run by Girsky, 58, in early June. The listing coincided with an exuberant run for shares of Tesla Inc., which is also working on an electric semi truck. Phoenix-based Nikola is working on models powered both by batteries and fuel cells and planning a hydrogen refueling network.

At its closing-price peak of $79.73 on June 9, Nikola’s market capitalization was $28.8 billion and at times surpassed Ford Motor Co.’s valuation. Milton -- who owns 35% of the company, according to regulatory filings -- was worth $9 billion within days of the listing, according to the Bloomberg Billionaires Index. His fortune shrank to $4 billion before Monday’s stock plunge.

The stock tumbled after Hindenburg questioned the validity of Nikola’s claims about its technology, accusing Nikola of being “an intricate fraud built on dozens of lies.” Milton called Hindenburg’s report a “hit job” on Twitter and posted videos on Instagram -- including one laden with expletives -- dismissing Hindenburg’s accusations.

Nikola issued a more detailed statement four days after Hindenburg’s report on Sept. 14, though some of the company’s responses were more counterarguments than rebuttals. In addition to making other claims, the short seller said it corroborated a June report by Bloomberg News that said Milton had exaggerated the capabilities of the company’s debut truck, Nikola One.

Milton, like Tesla Inc. Chief Executive Officer Elon Musk, has relied on social media to promote his company. In February, he introduced the Badger truck via a tweet, calling it “the most advanced electric & hydrogen pickup, designed to take down the Ford Raptor.” On June 8, he tweeted that Nikola would start taking Badger reservations later in the month for “the most bad a-- zero emission truck.” Potential buyers paid deposits as high as $5,000 -- without even seeing a prototype of a vehicle that won’t go on sale until 2022.

Investors have sometimes struggled to keep up with Milton’s messages, especially given the evolving list of projects Nikola is pursuing: battery-electric big rigs in Europe, fuel cell-powered semis in the U.S., an electric pickup to be built by GM and becoming the preeminent supplier of hydrogen for fleets of vehicles.

“It’s a bit confusing trying to follow Trevor on his various social-media outlets about the timing and cadence of communication of the different variables that you’re talking about,” Cowen analyst Osborne told executives during Nikola’s first earnings call on Aug. 4.

Norway Knock-on Effect

Nikola has had a co-development agreement with Germany’s Robert Bosch GmbH since 2017 to develop key components including fuel cells, motors and battery packs. It plans to build a battery electric semi-truck with CNH Industrial NV’s Iveco at a facility in Ulm, Germany, by the end of next year. A fuel-cell semi truck is planned for 2023 that will be built at a Nikola factory under construction in Coolidge, Arizona. GM plans to provide the fuel cells and battery packs.

Nikola also plans to lease fuel-cell-powered semi trucks bundled with the cost of fuel and maintenance at a fixed price per mile. It currently has a single demo hydrogen fueling station at its headquarters in Phoenix, but the company envisions a network of 700 stations throughout North America supplying hydrogen “at cost parity to diesel.”

Milton’s resignation pulled down shares of Norway’s Nel ASA, which has a contract to supply Nikola with electrolyzers and fueling equipment. The first shipment is slated to arrive in 2023 to support a handful of hydrogen stations in the U.S.

(Updates with closing shares in third paragraph)

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