As strobe lighting lit up a former railway shed on the outskirts of Turin, Trevor Milton took to the stage. It was December 2019 and the founder of fledgling truckmaker Nikola was enjoying the proudest moment of his life, unveiling an investment by Italy’s CNH Industrial.

Dwarfed by the electric Nikola TRE truck, he described how “we now have production lines ready to go”.

There was only one problem: it was not true. Close to a year later, the assembly line at Iveco’s plant in the German city of Ulm is still not complete and the prototypes are being built by hand. Finished Nikola trucks will not be made until the final months of 2021.

Just how many of Mr Milton’s claims are false has become the talk of investors worldwide after a short-seller’s report alleged Nikola was an “intricate fraud”.

Now the US Securities and Exchange Commission and the Department of Justice are looking into the company, a stock market sensation that this summer surpassed Ford in value without having sold a single vehicle.

Interviews with more than a dozen business partners, investors, and former and current employees paint a picture of a company whose lofty ambitions are not matched by the state of its development, and whose founder will say almost anything in the pursuit of his dream of “revolutionising transport”.

On Wednesday Jeff Ubben, founder of US hedge fund ValueAct and a longtime Nikola investor and board member, told the Financial Times the group was fundamentally misunderstood, with critics focusing on truck production rather than viewing the business as a hydrogen supplier.

Last week, before the short report came to light, Mr Milton described his company as “a hydrogen technology infrastructure play” that intended to make most of its money selling fuel for its vehicles.

Nikola's bumpy ride since its June listing

“You’ll make good money selling trucks but you’ll make five times as much if you include hydrogen,” he told the FT, estimating Nikola would make “nearly $1m per vehicle” from a sale price of $300,000 and a lifetime’s hydrogen supply worth $400,000.

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Several people described the company as a “systems integrator”, combining other companies’ technology into a vehicle — which would make it more akin to a traditional auto group than an audacious technology pioneer.

One engineer at the company said it mostly used “off-the-shelf technology” and was “doing nothing meaningful in the world of batteries, other than maybe buying some pretty decent ones”.

The company does have some proprietary hydrogen technology, according to several people.

While the Hindenburg short-seller report criticised the fact key hydrogen roles are held by Mr Milton’s brother and a former golf club general manager, several investors said they were swayed by the pedigree of the team, which includes executive vice-president Jesse Schneider, who previously worked at BMW.

Mr Milton said this summer the company had cut the price of producing hydrogen from $16 per kilogramme to below $4.

One former employee said Nikola had not met that goal, although he was optimistic it would do so in the future.

Waterfall chart showing Nikola's projected cash generation  for one of its FCEV trucks in thousands of dollars

When Nikola struck a deal with General Motors to build its Badger pick-up truck, the pair settled on GM’s own hydrogen system rather than the start-up’s.

Mr Milton told the FT this was because GM’s own technology is “ready to go”.

Pressed on what Nikola brings to the $2bn deal, he listed over-the-air software updates, the infotainment system and “all the stuff that is very, very delicate”. But he stressed: “Most of the entire core of the vehicles is our IP.” 

Such vagueness on Nikola’s technology has drawn comparisons with Theranos.

Before collapsing amid claims of a multibillion-dollar fraud, the blood test start-up wooed partners with its luminary board members and investors, who included Henry Kissinger, Rupert Murdoch and Oracle founder Larry Ellison. It appeared each new investor or customer assumed the others had done their homework.

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Several people who defended Nikola in the hours after the Hindenburg allegations cited its partners and shareholders — Mr Ubben and Bosch were early investors, while GM’s partnership carried the seal of approval of a top-flight carmaker.

A Nikola handout depicting the Badger pick-up © Nikola

Nikola’s own first defence was that the company “has been vetted by some of the world’s most credible companies and investors”.

Mary Barra, the GM boss, this week defended the investment.

“Our company has worked with a lot of different partners and we [have a] very, very capable team that has done the appropriate diligence,” she told a conference, declining to answer specific questions on the allegations against Nikola.

Nikola held discussions with several carmakers before signing with GM. Talks with Fiat Chrysler on making the Badger fell apart this year, according to four people with knowledge of the discussions.

Talks with GM first started on Nikola buying hydrogen fuel cells, and the discussions expanded to include making the Badger, two people said.

Mark Russell, Nikola’s chief executive, contrasted the company with the go-it-alone attitude of Tesla, telling the FT its partnerships demonstrated Mr Milton was “looking for help . . . he didn’t believe he knew it all, that he could do it alone”.

Not all the company’s tie-ups have been successful, however.

Column chart of Net loss attributable to common stockholders ($m) showing Nikola's lossmaking years

Last October it signed a letter of intent to buy UK-based battery start-up ZapGo. But after discovering the company’s president had previously been indicted for billing prostitutes to his expense account while working for a Nasa-funded lab, Nikola pulled the plug. ZapGo collapsed into administration this year.

But there was a bigger problem: ZapGo’s technology.

Volta Energy Technologies, the venture capital firm led by Jeff Chamberlain, former head of the US government’s top battery lab, passed “hard and quick” on investing in the company last year.

Less than three weeks after signing the ZapGo deal, Nikola trumpeted “details of its new battery”, which would double the range of electric cars to 600 miles. On Monday it said a deal with a university was the source of the battery, not ZapGo. But the battery breakthrough is yet to appear.

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“What do they have technically?” Mr Chamberlain said. “As far as I know, nothing. And if they do, they should tell people about it.”

Attention has inevitably turned to Mr Milton, the focus of the short report.

A past venture called dHybrid that fitted trucks to run on a mix of diesel and clean natural gas was sued by its largest customer after failing to deliver even half the number of working prototypes promised. A potential $200m deal evaporated with the lawsuit.

Investors in dHybrid lost money, a former business partner told the FT, describing Mr Milton in starkly critical terms.

Stakeholders have pointed to Mr Russell’s calming presence as a foil to Mr Milton’s ebullience.

“He is a very strong operator, there were very healthy checks and balances between the two,” said one investor. “If Trevor has 100 ideas, Russell said, ‘let’s do these 10 really well’.”

Mr Milton told his Twitter followers on Friday he was laying off the messaging service following legal advice, only to post four times later that evening, including saying he was “pissed” at the allegations.

However, he now appears to be heeding several friends’ advice to show more restraint. He has tweeted just twice since Sunday.

Despite the slew of personal attacks and allegations of years of deception, there are no moves within the business to remove Mr Milton, who is seen as one of the company’s greatest assets.

But as one person who knows both men said: “The world needs more people like Trevor, but Nikola needs Mark Russells to make the trains run on time.”

Via Financial Times