Nikola’s [NKLA] share price is having quite the ride so far this year. The electric vehicle maker has been battling allegations of fraud outlined in a report by short-seller Hindenburg Research, according to The Wall Street Journal.
Nikola’s share price dropped 14.48% following the release of the report on 10 September, but the electric vehicle manufacturer has stated the report is misleading and it will refer the matter to the US SEC.
The report is not the only thing that has caused volatility for Nikola’s share price, however. In the days since the report, General Motors invested $2bn in the company for an 11% stake, the Financial Times verified the Hindenburg allegations, and a very high-profile resignation has taken place. All in just over a week.
Is Nikola’s share price now stuck in reverse, or can it accelerate back to its mid-year highs?
The accusations harming Nikola’s share price
The gist of the report is that Nikola used third-party parts in its early models, instead of its own much-touted 'proprietary technology'. To woo investors, it also created a marketing video showing its Nikola One prototype truck driving through Utah. The issue with the video is that the truck wasn't driving through Utah at all, but was instead rolling down a hill in Utah, with the engine off.
This all boils down to misrepresentation from a company that has been selling itself to investors based on its innovative technology. According to Hindenburg Research, Nikola's real “key asset was its founder’s ability to raise money”.
How did Nikola respond?
Nikola says the report is 'false and misleading'. However, it has conceded that some of the accusations, such as the use of supplier parts, are true. In a lengthy press release titled Nikola Sets the Record Straight on False and Misleading Short Seller Report, the company says:
"[The Hindenburg Research report] was designed to provide a false impression to investors and to negatively manipulate the market in order to financially benefit short-sellers, including Hindenburg itself."
It then goes on to dispute the report, from its use of batteries to whether a truck drove down a hill in Utah or not. On the latter point, Nikola says that the firm "never stated its truck was driving under its own propulsion in the video,” only that it was “in motion”.
“[The Hindenburg Research report] was designed to provide a false impression to investors and to negatively manipulate the market in order to financially benefit short-sellers, including Hindenburg itself” - Nikola press release
Can it get worse for Nikola’s share price?
Now the Securities and Exchange Commission is investigating both the report's claims and Nikola's claims of market manipulation. However, they're not the only governmental body looking into the fiasco. The US Department of Justice's New York office is also now investigating the report's claims.
In another twist, the Financial Times reported that the company is relying on batteries from Romeo Power Technology. This is the second example of Nikola using established technology, rather than its own, after an agreement with General Motors to use its Ultium battery in its Badger trucks.
After such a dramatic run of events, most investors probably thought it couldn’t get any worse for Nikola’s share price.
Then, on Monday, founder Trevor Milton resigned as executive chairman.
“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,” Milton wrote. As a result, “I made the difficult decision to approach the board and volunteer to step aside as executive chairman.”
“I made the difficult decision to approach the board and volunteer to step aside as executive chairman” - founder Trevor Milton
Milton said in a separate letter to employees that he would defend himself against "false allegations levelled against me by outside detractors”.
Stephen Girsky, a Nikola board member and former vice-chairman of General Motors, will take Milton's place
What's the outlook for Nikola's share price?
Milton’s surprise resignation saw Nikola’s share price fall 19% on Monday, with GM’s falling 5%.
In the past five days alone, Nikola’s share price has fallen over 16% as the continuing revelations repeatedly put the brakes on investor appetite.
While we don’t know if the allegations are true, and GM would likely have done its due diligence before investing, the resignation of Nikola’s founder isn’t a good sign. For those willing to buckle up for the ride, Nikola’s share price carries a $55.75 target. Hitting this would see a healthy 95.5% upside on its price through 22 September’s close.