Nikola’s [NKLA] share price crashed over 15% on Thursday after founder Trevor Milton was indicted by a federal grand jury. The U.S. Attorney’s Office in Manhattan has accused Milton of lying about ‘nearly all aspects’ of the business to boost Nikola’s share price since March 2020. The billionaire had stepped down from the board of the electric vehicle (EV) maker in September.
Milton was charged with two counts of securities fraud and one of wire fraud. Prosecutors claim that Milton lied about future sales and targeted amateur traders to take Nikola public via a special purpose acquisition company (SPAC); some of these investors, according to the prosecutor, have lost hundreds of thousands after Milton’s statements were ‘revealed to be false or misleading’ as said by Manhattan U.S. Attorney Audrey Strauss in the press release.
Pressure mounts on Nikola’s share price
“This is a very straightforward case,” said U.S. Attorney Audrey Strauss told reporters on Thursday. “Milton told lies to generate popular demand for Nikola stock.”
Accusations included representing the Nikola One truck as a working prototype when it lacked propulsion. Last year a promotional video showing a Nikola truck driving down a hill was in fact the Nikola truck rolling down a hill - i.e. gravity, not its engine, was causing the truck to move.
Nikola’s share price was already facing pressure ahead of upcoming second-quarter earnings. Between 22 July and 27 July, the stock slid over 5% as an S-1 filing showed that shareholders had sold off 1.68m shares. The filing with the Securities and Exchange Commission showed Quasar Energy Partners LLC, Philipp Brothers Fertilizer LLC and Little Brothers LLC had all sold off their stakes in the EV company.
Milton was taken into custody Thursday where he entered a plea of not guilty and was released on a $100m bail. His legal team released a statement saying their client had ‘been wrongfully accused following a faulty and incomplete investigation’.
“We remain committed to our previously announced milestones and timelines and are focused on delivering Nikola Tre battery-electric trucks later this year from the company’s manufacturing facilities” - statement from Nikola
Nikola has said that the charges are against Milton, not the company in an emailed statement. Nikola also said Milton hasn’t been involved in the company since his resignation on 20 September 2020. Still, this is toxic stuff and comes after a report from short seller Hindenburg that alleged Nikola was an “intricate fraud”.
“We remain committed to our previously announced milestones and timelines and are focused on delivering Nikola Tre battery-electric trucks later this year from the company’s manufacturing facilities,” Nikola said.
Can Nikola’s share price post-earnings?
The impact of Milton’s arrest is bound to cloud the upcoming earnings result. Shareholders will be looking for a direct response from Nikola, along with numbers that show the electric truck company is heading in the right direction. Any update on vehicle trial production at its German and US facility will be closely watched, as will news on the delivery of the first Nikola Tre BEVs to customers during the fourth quarter of 2021. Any slip up will likely compound the recent selloff.
Wall Street is expecting Nikola to post a $0.29 loss per share on no sales, an increase on the $0.16 loss per for the same period last year.
Nikola is also dealing with the wider sell-off in EV stocks. In China, the regulatory crackdown has led to heavy declines recently in domestic EV manufacturers Nio [NIO], XPeng [XPEV] and Li Auto [LI]. The worry now is that the outlook for China won’t improve, in the short-term at least, affecting other EV manufacturers who want to do business in one of the biggest EV markets on the planet.
Nikola’s share price has an average $18.14 price target from analysts tracking the stock on Yahoo Finance - hitting this would see a 50.8% upside on Thursday’s closing price. For Nikola’s share price to recover, it will take a strong set of earnings, meaningful progress on delivery and for the company to restore trust with its shareholders. A tall order right now.
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