Enlarge /. Nikola One, chairman Trevor Milton, unveiled the Nikola One in December 2016.
Trevor Milton, founder of the electric vehicle startup Nikola, resigned as CEO of the company with immediate effect on Sunday. Nikolas stock fell on the news and is currently trading at around $ 28 per share, down 18 percent.
Milton's resignation came just 10 days after a bomb research report found that Milton was telling the truth in 2016 when he unveiled the company's first product, Nikola One, claiming it was "fully functional". The report by short-selling firm Hindenburg Research also found that a Nikola One truck that appeared to be driving down a freeway on its own in a 2018 promotional video was actually rolling down a hill. Nikola admitted last week that the Nikola One never worked.
The Hindenburg revelations put Nikola's management under enormous pressure. Both the Securities and Exchange Commission and the Department of Justice have reportedly started investigations into possible fraud by the company. Over the weekend, Milton (voluntarily, he says) offered to step down as chairman of the board, and Nikola's board of directors accepted his offer. Milton will also relinquish his seat on Nikola's board of directors.
Nikola has selected former GM manager Stephen Girsky as its new chairman. Mark Russell remains CEO. Until now, Russell has had a lower profile than a typical CEO, with Milton serving as the face of the company. It is unclear whether Russell or Girsky will take on Milton's role as the de facto leader of Nikola.
An SEC filing states that Milton is giving up its claim to 4.9 million unassigned shares in Nikola, valued at approximately $ 130 million. However, it will receive accelerated exercisability for an additional 600,000 shares valued at approximately $ 16 million. Milton owns more than 90 million Nikola shares valued at $ 2.5 billion at current prices. So these are small numbers compared to his existing stake in the company.
Milton's exit deal stipulates that he will give up the right to a $ 20 million consulting contract and instead give Nikola free advice until the end of the year. Nikola is also paying $ 100,000 for a personal security detail for Milton over the next three months.
Nikolas fights are not over yet
Nikola's defense lawyers argue that the deceptions exposed by Hindenburg are old news because Nikola long ago abandoned plans to commercialize Nikola One. In recent years Nikola has concentrated its energy on new products: the Nikola Two and Nikola Tre tractor units and the Nikola Badger Pickup.
Nikola has a working prototype of at least the Nikola Two. In addition, the company now has partnerships with established truck manufacturers such as Bosch, Iveco and GM to design and build its newer trucks. So we don't have to worry that Nikola One's new trucks are literally vaporware, as it turns out the Nikola One is.
The big question, however, is whether Nikola will have any particular advantage over established truck manufacturers – either in terms of truck capabilities or in terms of the ability to profitably bring them to market. With the Nikola Badger, for example, Nikola not only outsources the manufacture of the truck, but also outsources much of the truck's design and powertrain.
It's not clear what Nikola brings to the table other than a bag of cash and a brand name. And just selling reconditioned versions of other companies' trucks doesn't seem like a recipe for long-term profitability.
Could hydrogen save Nikola?
Nikola Boosters point to the company's unique hydrogen-based business model as key to Nikola’s success. Instead of selling hydrogen-powered tractor units directly to customers, Nikola plans to rent trucks to customers that come bundled with hydrogen fuel and a maintenance contract.
This seems like a potentially clever business model. From the customer's point of view, leasing a truck and receiving a preset price for hydrogen reduces the risk of switching to hydrogen technology – especially if the start is not proven.
From Nikola’s perspective, the leasing model offers a guaranteed customer base for the network of hydrogen filling stations that are to be built along important motorways. This kind of bundled service could eventually enable Nikola to make higher profits on every truck sold.
But here, too, the big question is whether Nikola actually has the unique abilities to realize his ambitious vision. The planned network of hydrogen filling stations does not yet exist and it is not clear whether Nikola has the capacity to build it. Milton has claimed Nikola reduced the cost of making hydrogen from $ 16 per kilogram to $ 4 per kilogram (in some interviews, he mentioned even lower numbers). But he has not produced much evidence to support these claims.
Of course, you could similarly criticize any startup announcing a new, unproven technology or business model. However, this is where the credibility of a startup's founders is crucial. A story of past deceptions makes it difficult for investors to believe a company's new promises.
So far, however, Nikola seems to have retained a core of true believers in his vision. Nikola's current stock price of around $ 28 is significantly lower than the high of $ 50 when Nikola announced its deal with GM earlier this month. However, Nikola 's share price is still around $ 10 billion – an astonishing number for a company that does not yet have to deliver a single truck to customers.