A would-be truck maker is on trial on fraud charges in a case seen as a cautionary tale about the risks of investing in electric car companies that are yet to generate any sales or deliver any products.
Trevor Milton, the founder of electric truck maker Nikola Motor, is facing federal fraud and securities fraud charges stemming from allegations that he exaggerated the company’s technology, leading to crushing losses for people who bought Nikola stock before it collapsed.
The trial, which will last four or five weeks after jury selection begins Monday, is being held in U.S. District Court in Manhattan. Mr Milton pleaded not guilty. He is represented by Marc Mukasey, who represented the Trump Organization, and Edward Gallagher, a member of the Navy SEALs. who was accused of war crimes in Iraq.
In 2020, Nikola was briefly worth more than Ford Motor on the stock market, amid investor excitement about the upstart’s potential to become the Tesla of the trucking industry.
Nikola’s shares fell sharply after that news that Mr. Milton made false claims about Nikola’s technology, including filming a video of a truck being driven down a slope to make it appear as if the company had a working prototype.
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Mr. Milton soon resigned, and Nikola continues to operate. It has begun manufacturing the battery-powered truck, known as the Tre, at a plant in Arizona and has delivered about 50 to dealers, a spokeswoman said. Nikola posted a net loss of $173 million in the three months to June on revenue of $18 million.
Last year, Nikola agreed to pay a civil penalty of $125 million to settle a fraud investigation by the Securities and Exchange Commission. Nikola did not admit wrongdoing as part of the settlement.
Nikola shares recently traded around $5.40, down from a June 2020 record close of nearly $66.
The case is also seen as an example of the risks of investing in special purpose acquisition corporations, or SPACs, companies that go public before they have any assets. Nikola went public in 2020 by merging with a SPAC called VectoIQ Acquisition Corporation, avoiding some of the regulatory scrutiny typically applied to initial public offerings.
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With the exception of Tesla, many electric vehicle manufacturers have struggled to ramp up production or gain significant market share. Their chances of success are shrinking as traditional car and truck manufacturers are late in introducing battery products.
In the Nikola case, federal prosecutors allege, Mr. Milton promoted the stock in interviews and on social media in a deliberate attempt to attract less sophisticated retail investors.
“We need to make sure we get the retail investors on our side,” Nikola said in an email to board member the day before the company announced it would merge with VectoIQ, according to the indictment against him.
According to the indictment, Mr. Milton made numerous false statements in which he claimed Nikola had a fully functional truck in 2016 when the vehicle had no transmissions or engine. The indictment also says Nikola posted videos online that appeared to show the prototype driving down a road when it lost power and went down a hill.
Additionally, according to the indictment, Mr. Milton claimed in 2020 that Nikola was developing a pickup truck, the Badger, “from the ground up” using its own technology. In fact, the government says, the technology came from third parties, and the Badger prototype was built using parts from Ford F-150 pickup trucks.
Mr. Milton later claimed in a podcast interview that the Badger would beat the F-150, prosecutors say.
At one point, he tweeted that the Badger would have a drinking fountain powered by waste water from its hydrogen fuel cell. But Mr. Milton did not discuss the feature with his engineers and later searched the Internet to see if it was feasible, according to the indictment. (Apparently it wasn’t.)
In addition to building trucks, Nikola planned to build a network of hydrogen filling stations for trucks powered by fuel cells. Mr. Milton repeatedly claimed that Nikola had already built stations that could produce its own hydrogen cheaply, the indictment said.
“Nikola never obtained a permit, let alone built a hydrogen station, or produced any hydrogen,” the indictment states.
Retail investors bore the brunt of the losses when Nikola’s shares plunged more than 40 percent in September 2020 following Mr Milton’s resignation, the indictment said. Some institutional investors who “had more complete access to information about Nikola’s products and technologies” got out earlier, prosecutors say. These investors “were able to sell their shares at a substantial profit.”