Milton, Nikola's founder, resigned after an investment fund accused him of making false claims
Shares of Nikola (NKLA) plunged in morning trading after the founder and executive chairman of the company resigned after an investment fund had recently accused him of making false claims about the company's technology.
NIKOLA'S TREVOR MILTON RESIGNS: Trevor Milton, the founder and executive chairman of Nikola Corp, announced his resignation late Sunday, less than two weeks after signing a $2B deal with General Motors (GM). Stephen Girsky, a former vice chairman of GM and a member of Nikola’s board, will take over as chairman, the company said in a statement.
Milton said "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. So I made the difficult decision to approach the board and volunteer to step aside as Executive Chairman. Founding Nikola and growing it into a company that will change transportation for the better and help protect our world's climate has been an incredible honor. As we move forward, I am confident Steve is the right leader to guide our vision at the board level." Milton added that "We've built a deep bench of talent over the years, and I am confident that Nikola's Chief Executive Officer, Mark Russell, supported by Chief Financial Officer, Kim Brady, and the rest of the leadership team will advance our goal of making Nikola the global leader in zero-emissions transportation."
BACKGROUND: On September 10, 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."
Nikola denied Hindenberg's claims and said it has hired a law firm to evaluate legal recourse over the allegations. "To be clear, this was not a research report and it is not accurate. This was a hit job for short sale profit driven by greed," Nikola said in a statement. It added that it intended to bring the actions to the attention of the SEC.
The accusations came days after the company announced a 10-year alliance with General Motors. Under the terms of the agreement, GM will engineer and manufacture Nikola's Badger pickup truck and provide its Ultium battery system and Hydrotec fuel-cell technology for Nikola's semi-trucks in exchange for an 11% stake in the company valued at $2B.
Nikola is being probed by the Justice Department over claims it misled investors, people familiar with the matter have said. The DOJ is specifically looking at allegations that electric truck maker Nikola "misrepresented progress it made in developing key technology core to releasing new models," according to the sources.
WHAT'S NOTABLE: CNBC's David Faber reported on air that Milton was not forced out by the board. In fact, Milton had previously offered to step aside and the board did not take him up on the offer until he made the offer another time and the board accepted, according to Faber's reporting.
Meanwhile, GM said it stands by its agreement with Nikola despite the resignation of Nikola founder and executive chair Trevor Milton, telling CNBC's Phil LeBeau: "We will work with Nikola to close the transaction we announced nearly two weeks ago..." according to a tweet from CNBC's transportation reporter.
DEPARTURE 'SHOCKING': Wedbush analyst Daniel Ives said Milton's resignation is "shocking," and that the move will be perceived 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. Ives says while there will be a lot of worries around the departure, going forward Nikola has a strong bench and it is all about execution going forward with the GM partnership a linchpin to its success. The analyst made no change to his Neutral rating or $45 price target.
ELEVATED RISK: JPMorgan analyst Paul Coster lowered the firm's price target on Nikola to $41 from $45, saying the year-end 2021 price target cut reflects the risk associated with the resignation of founder and executive chairman Trevor Milton, Coster told investors in a research note of his own. Milton's resignation could weigh on some of the partner and customer relationships he has forged, and employee morale "is probably fragile right now, just as the workload is intensifying and competitive threat looms," said the analyst. However, Coster believes inbound chairman Stephen Girsky is "probably better suited" for the next phase of the company's development, which is centered on execution. The analyst still assumes Nikola will execute to its plan, noting that most developments to date have slightly exceeded his expectations, "with the exception of Mr. Milton's social media and marketing missteps."
A 'NECESSARY' DECISION: RBC Capital analyst Joseph Spak lowered the firm's price target on Nikola to $21 from $49 and keeps a Sector Perform rating on the shares. The analyst cited the company's announcement of the resignation of its executive chairman Trevor Milton, calling it a "necessary" decision with "right" long-term implications toward rebuilding the management's credibility. Spak added that Nikola should shift its focus to fuel cell truck leases and hydrogen infrastructure build-out, though he notes that this "large opportunity" is not without risks.
STOCK WEAKNESS A BUYING OPPORTUNITY: Cowen analyst Jeffrey Osborne said he believes 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 recent short seller report from Hindenburg Research. Given this view, he would use the associated weakness in the stock as a buying opportunity, although Osborne acknowledges "it may take a few days for the dust to settle." While the "optics of the resignation are terrible," he sees this outcome as being in the best interest of the company, added Osborne.
PRICE ACTION: In morning trading, shares of Nikola plunged nearly 20% to $27.46.