Depending on what you've read about the electric vehicle company Nikola, its founder Trevor Milton is either the new Elon Musk or the next Elizabeth Holmes. Once hailed as the beginning of a new era of clean energy for the trucking industry, the company is now being accused of fraud and outright fraud. On Sunday, Milton resigned as CEO for allegedly grossly overrating the company's technological capabilities.
The claims come from a report by the short-selling firm Hindenburg Research. The authors claim that Nikolas “proprietary technology” was really cobbled together from parts of other companies. A video of a Nikola truck rolling down a hill was staged, the report said. According to Hindenburg, the company "had the truck towed up a hill on a remote road and just filmed it down the hill." Nikola shares fell significantly following the report, securing Hindenburg big gains, according to the Wall Street Journal.
The news shook Milton's image, which had been carefully modeled on the model of Steve Jobs and Elon Musk. In a 2019 Forbes article, he was described as a "lifelong garage hobbyist" who dropped out of college and then traveled to Brazil on a Mormon mission. The trip "got him thinking about broader issues, particularly environmental issues," the Forbes article reads. In 2010 he founded a company to develop natural gas fuel systems.
The coverage was typical of the company prior to summer 2020. Nikola has been compared to Tesla, both led by founders who built on the legacy of the Serbian-American inventor to transform the electric car industry. "Nikola Motor Company CEO Plans to Revolutionize Trucking," read a March headline in a trade magazine. “From disruptor to leader? Trevor Milton on Nikola's strategy for 2020 and beyond, ”read another. When Milton bought a $ 32.5 million ranch in Utah, Los Angeles Times publications to Business Insider documented his billionaire lifestyle.
The pattern is familiar to those who have watched the rise and fall of blood testing startup Theranos. Like Holmes, Elizabeth Holmes was a college dropout who'd landed on a wildly complicated field and somehow revolutionized it overnight. Media coverage of the startup saved it from scrutiny and helped it reach a value of $ 9 billion before it was found to be a scam.
After the Theranos scandal, it seemed possible that the age of founder worship was coming to an end. "Treating CEOs as if they were born on the planet Krypton leads, among other things, to too much money and too much power being granted to them," wrote the Wall Street Journal in 2018. Two years later, Milton's sudden death shows Silicon Valley hasn't quite learned its lesson yet.
In June General Motors bought a $ 2 billion stake in Nikola, despite the fact that the company had almost no sales and never produced a single truck, according to The New York Times. The move "briefly pushed the market value of Nikola above Ford Motor Co.," reported the Wall Street Journal. It was likely due to GM's desire to catch up with Tesla on the electric vehicle space.
When Bloomberg journalist Edward Ludlow wrote a story claiming that Milton "exaggerated" the capabilities of his debut truck, Milton threatened to sue. "That's sad," he tweeted according to the screenshots in the Hindenburg report. "@EdLudLow should be released."
Ludlow could have cast doubts about Milton's credibility as a leader, but it still seemed possible that the startup and its founder would get through. On Twitter, Milton played the role of a beleaguered founder fighting an irresponsible press.
Then, on September 10, Hindenburg released his report and the Securities and Exchange Commission participated. The regulator, along with the Justice Department, launched an investigation to see if Nikola had misled investors. The company's shares fell 33 percent in two weeks, according to the Wall Street Journal. Milton had no choice but to resign.
According to the Hindenburg report, Milton really misled investors. It should be noted, however, that funding, particularly in Silicon Valley, often comes with considerable speculation. The gap between what a company can do today and what it can do in the future is where investors benefit – as long as the gap is eventually closed. If the company never achieves its goal, it has been found to be a failure at best and a scam at worst.
Nikola issued a statement calling the Hindenburg report "false and defamatory" and saying it was intended to manipulate the market to make money for the short sellers. The research contained "a number of false and misleading statements," the company wrote. It was "a hit with greed-driven short selling". In response to a request for comments from The Verge, the company sent links to previously posted comments.
In a statement emailed to The Verge, Hindenburg wrote, “We have published 67 pages of well-reviewed research that identified numerous misrepresentations by the company. The company ignored most of the questions we raised. From those it raised, it largely confirmed our findings. The company's founder and CEO promised a full rebuttal and instead resigned and deleted his social media accounts. "
The report helped Hindenburg financially – and I don't think it's inaccurate for Nikola to say that was the goal. Reading through the study, which includes emails and text messages from former employees, it becomes clear that the company operates in a zone between journalism and activism and uses research methods to produce a graph of financial gain.
Journalists don't do that – there's a reason we can't take out sources of coffee or pay people to give us good advice. But in Silicon Valley, where the media was involved in building the founding personality, there could be room for a different breed of investigator who is not distracted by allegations of financial motivation or bias.
When Elizabeth Holmes was pulled out of a series of articles in the Wall Street Journal, she fought hard to discredit the narrative. In recent years, this tactic has been cemented by founders who view negative press as smear campaigns by irresponsible journalists.
Nikola uses similar tactics on Hindenburg, indicating that the company is in for the money. However, Hindenburg's incentives as a short seller are open. Instead of deciphering the negative press, Nikola could spend more time explaining what is not true in the report.
However, this is in line with the founder's first game book Nikola and other tech companies have followed in years: focus on the person selling you rather than questioning what they're trying to sell you.