The fraud call comes after Nikola announced a strategic partnership with General Motors earlier this week
Shares of Nikola (NKLA) are under pressure on Thursday after short-selling focused firm Hindenburg Research accused the company and its founder, Trevor Milton, of fraud. Hindenburg Research called the electric truck maker "an intricate fraud" built on "dozens of lies." Meanwhile, Nikola founder and Executive Chairman Trevor Milton called the report "a hit job" and said he would respond to Hindenburg's "lies" shortly.
'INTRICATE FRAUD': In a report published on its website, short-selling research firm Hindenburg Research said it believes Nikola "is an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton's career." The firm argued that it has "gathered extensive evidence - including recorded phone calls, text messages, private emails and behind-the-scenes photographs - detailing dozens of false statements by Nikola Founder Trevor Milton," adding that it has "never seen this level of deception at a public company, especially of this size."
"We examine how Nikola got its early start and show how Trevor misled partners into signing agreements by falsely claiming to have extensive proprietary technology. We reveal how, in the face of growing skepticism over the functionality of its truck, Nikola staged a video called 'Nikola One in Motion' which showed the semi-truck cruising on a road at a high rate of speed. Our investigation of the site and text messages from a former employee reveal that the video was an elaborate ruse - Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill," the report reads.
Regarding the recently announced partnership with General Motors (GM), Hindenburg Research argued that, "In addition to now using GM’s battery technology, Nikola seeks to use the automaker’s production and fuel cell capabilities. Nikola seems to be bringing nothing to the partnership but concept designs, their brand name and up to $700 million they will be paying GM for costs related to production."
'HIT JOB': Following Hindenburg's report, Nikola founder and Executive Chairman Trevor Milton said via Twitter that, "It makes sense. Tens of millions of shares shorted the last day or two to slam our stock and hit job by hindenburg. I guess everything is fair game in war, even a hit job. I know who funded it now. Give me a few hours to put together responses to their lies. This is all you got?"
Meanwhile, General Motors has told Reuters that it stands by statements made in announcing its partnership with Nikola.
GM PARTNERSHIP: On Tuesday, Nikola announced a strategic partnership with General Motors. The pact, which begins with the Nikola Badger, will see Nikola utilize General Motors' Ultium battery system and Hydrotec fuel cell technology. As part of the deal, Nikola will exchange $2B in newly issued common stock for the in-kind services and access to General Motors' "global safety-tested and validated parts and components," the companies said.
Following the partnership announcement, RBC Capital analyst Joseph Spak raised the firm's price target on Nikola to $49 from $46 but kept a Sector Perform rating on the shares. The analyst said the partnership helps to de-risk the company's business model with its Badger contract manufacturing agreement, bringing the electric pickup truck to serial production. Spak added that about two-thirds of Nikola's major milestones expected by year-end are now complete, with "additional positive catalysts" coming in the form of "hydrogen station partner and Nikola World."
Meanwhile, Deutsche Bank analyst Emmanuel Rosner closed the firm's short-term "Buy Catalyst Call" on shares of Nikola. The analyst argued that the General Motors partnership announcement provides a "second large additional external validation" for Nikola's business, following its large BEV truck order from RSG announced last month. The analyst's longer-term fundamental rating on the stock remains Hold.
PRICE ACTION: In morning trading, shares of Nikola, a hopeful Tesla (TSLA) competitor, have dropped almost 6% to $39.95.