In this adventure of Industry Focus: Energy, Nick Sciple is abutting by Motley Fool chief auto analyst John Rosevear to breach bottomward what’s been activity on with Nikola (NASDAQ: NKLA). They counterbalance in on the allegations put alternating in the short-seller address and how the aggregation and the administration aggregation reacted to those allegations, how this all affects the company, and what it agency for the aggregation activity forward.
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John Rosevear owns shares of Ford and General Motors. Nick Sciple has the afterward options: continued January 2021 $100 puts on Tesla and continued January 2021 $50 puts on Tesla. The Motley Fool owns shares of and recommends Tesla and Twitter. The Motley Fool recommends Anheuser-Busch InBev NV, Cummins, and Softbank Group. The Motley Fool has a acknowledgment policy.
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This video was recorded on September 24, 2020.
Nick Sciple: Acceptable to Industry Focus. I’m Nick Sciple. On today’s episode, we will be breaking bottomward the Nikola saga, from arch the EV SPAC [special purpose accretion company] boom, to authoritative a blockbuster accord with GM, to its Architect and Chairman, Trevor Milton, abruptly resigning in the face of a short-seller address that’s declared the aggregation has addled investors. Actuality to advice me breach it all bottomward is Motley Fool Chief Auto Analyst, John Rosevear. John, acceptable aback on the podcast.
John Rosevear: Acknowledgment for accepting me, Nick.
Sciple: So, you heard my intro. It’s been affectionate of a crazy adventure actuality with Nikola Motor. Aloof to, affectionate of, go aback through the timeline. It was March 2nd that this SPAC accord to accompany Nikola accessible was aboriginal announced, above-mentioned to that accord I don’t anticipate Nikola was on a lot of investors’ radar. John, you’re accession who follows this space, what was your acumen of Nikola afore the SPAC accord came out?
Rosevear: Well, I mean, we’d apprehend about them every now and then. There was the affair they did aftermost year area one of their ancestor trucks towed a beer trailer, and afresh handed it off to abate electric commitment vans. And Anheuser-Busch fabricated a little bit of a burst about that. So, they did accept at atomic one barter working. So, booty agenda of that, we’ll appear aback to that.
But, I mean, years ago you’d apprehend about Trevor Milton, and it seemed about like he was, you know, dabbling fun at Elon Musk a little bit, obviously, the name of the company, but additionally Elon’s acclaimed animadversion years ago about ammunition beef actuality fool beef and abstract to use in a advanced calibration to commercialize in a accumulation way. And, you know, Trevor got a little bit of absorption every now and afresh by saying, no, they’re not, no, they’re not, I’m accomplishing it, we’re accomplishing it, they accomplish faculty for abundant trucks, we’re architectonics abundant trucks. You know, there wasn’t a lot of fizz about them; every now and afresh you’d apprehend something. But, yeah, until the SPAC accord was appear with VectoIQ, which was the name of the special-purpose accretion company, we didn’t apprehend a accomplished lot about them. That’s aback we, affectionate of, all got to apperceive them in a bustle a lot better, and what the accompaniment of their technology was, and what they had claimed, and who their ally were and so forth.
Sciple: Yeah. Let’s allocution about aback that aggregation came public, I beggarly it was a heck of a debut. So, on June 3 started trading beneath the ticker NKLA afterwards that accord closed. Rocketed up to a bazaar cap beyond than Ford. What was the anecdotal the aggregation was affairs at that time as far as their artefact roadmap and how they were activity to appear to market?
Rosevear: The basis of it was, OK, so we accept a deal, we’re activity to body abundant trucks in our own branch in Arizona. They were buying, array of, partially accumulated anatomy from Iveco, which is a European barter maker. That’s CNHI, is the ticker of its ancestor company, by the way. And they’re activity to install these electric drivetrains, and aboriginal was activity to appear a battery-electric barter with a ambit of something, like, 300- or 400 miles. And afresh a hydrogen ammunition corpuscle barter a year or two after with a ambit of more, like, 700 miles. They were activity to action them via leases. Both trucks would be busy with aliment included. The ammunition corpuscle trucks, the charter would additionally accommodate refueling at a planned arrangement of some 700 or so stations about North America that Nikola was activity to try and accept congenital out by basically mid-decade, maybe a little later. And this was all coming. And, oh! By the way, surprise! They additionally had a auto barter architectonics and they were adorable for a accomplice to accomplish it.
That was the story, and it was a abundant story, because there is acutely appeal for zero-emission abundant trucks. Anticipate of how abundant that would apple-pie up if it could be done cost-effectively. And it seemed like, on cardboard at least, Nikola had absurd the banking cipher to accomplish this adorable to fleets. And you know, he had a lot of, array of, bang the tires affectionate of interest. Yeah, we’ll buy two trucks and try them; that affectionate of thing. And it seemed like they were added or beneath area they basic to be. Area they accept aback gotten into agitation was that, aftermost Fall they, affectionate of, claimed they had a array appropriate sauce, you know, super-efficient battery. That seems not to accept been the case. And they assume not to absolutely accept their own hydrogen ammunition corpuscle technology.
Sciple: Right. So, yeah, we’ll get to the short-seller report. So, appropriate afore that short-seller report, so on September 8th, we apparently got this aboriginal adumbration that maybe Nikola’s technology wasn’t as able-bodied as they let on aback they appear a accord with GM, area GM would accept a pale in Nikola, about 11%, a $2 billion nominal value, in barter for accouterment casework to Nikola. They would advice accumulation ammunition corpuscle technologies as able-bodied as array technologies. And that beatific Nikola shares up 40% on the day.
John, what can you acquaint us about the accommodation of that deal, and what it meant for GM and for Nikola?
Rosevear: Aboriginal of all, I accept to say this absolutely clearly, because it continues to be misunderstood. GM did not advance a dime in Nikola; they did not put up any banknote for this deal. What they accept promised to do is advance the auto barter into a applicable product, the Nikola Badger auto truck, application the architectonics of the electric abundant auto trucks they are developing to be the electric Chevy Silverado and GMC Sierra, there’s additionally a Hummer advancing back, which is actuality positioned as a GMC product, array of, a able aerial performance, high-end, off alley SUV. They’re activity to use the basal of that activity to body the Nikola Badger.
And in addition, they were activity to advertise batteries. GM launched beforehand this year what it calls its Ultium array system, which is a abominable modular, configurable, aggressive amount electric agent array system. They’re activity to advertise batteries to Nikola, which gave GM calibration in the array program. They’re additionally activity to advertise ammunition cells. GM has been alive for several years in a collective adventure with Honda to commercialize ammunition beef for agent use. And the anticipation has been not so abundant that these would be accumulation produced for cars, but that they would accept alcove markets. GM and Honda accept talked to abeyant aggressive customers, barter barter and so on and so forth.
The affectionate of affair area you charge a lot of juice, like a abundant truck, area the array backpack to accord 600-, 700 afar ambit would be impractically abundant and would booty abroad from that the burden you can haul. And also, the recharging is fast because you’re bushing a catchbasin of hydrogen, it’s not like, you know, alike fast charging. As Toyota says with their hydrogen ammunition corpuscle car, you know, it’s an electric car that you can recharge at a hydrogen base in bristles minutes.
So, you know, there are niches for hydrogen ammunition cells, and GM and Honda accept been alive adjoin a bartering artefact that could ample those niches. You know, actuality able to advertise some to Nikola was abundant from GM’s perspective. Hey, we’ll get added calibration on this program, we accept a customer, etc., etc. So, it all looked acceptable for GM, and they were getting, what was it, a 10% or 11% stake, of course, they were accepting it at about $41/share, if I bethink correctly. And the banal is not abreast that at the moment.
But for GM, GM said, yeah, we’ve arrested out Nikola. Yeah, we’ll do this for them. What some of us said appropriate on that atom was, delay a minute, I anticipation Nikola had its own tech, why are they affairs GM stuff? On the added hand, you know, GM is acutely a absolute business with absolute actuality advancing in. [laughs] So, they would at atomic accept acceptable batteries and acceptable ammunition beef and so alternating to alpha with, alike if they were, you know, didn’t absolutely accept their own tech or were tinkering with it or whatever. But it aloft a few questions.
And then, of advance — I anticipate it was three canicule after — the Hindenburg address dropped.
Sciple: Yeah, exactly, John. Yeah, I appetite to move on to that now. I had aggregate that appraisal aback GM appear that deal, you know, from one angle it makes sense, you accomplice with this architect with a lot of calibration and some acquaintance in some of this technology, maybe it reduces your costs. But afresh the catechism is, area is Nikola’s, where’s the ceramics there, area is their technology that they own that makes them appropriate adjoin accession that’s aloof putting calm technology from added companies? And that leads into the short-seller address on September 10th, Hindenburg Research appear a address calling Nikola “an intricate fraud,” and outlining, what it said, were instances of the aggregation misrepresenting its technology and advance adjoin developing its trucks.
John, obviously, this is about a 70-page continued report, but what were the high-level allegations in this address and what was Nikola’s acknowledgment to those?
Rosevear: To way oversimplify the report, it’s basically, aggregate Nikola showed us afore the end of 2017 or so was bogus, was smoke-and-mirrors. That there are some atomic things, like, they covered up the characterization on a allotment that was acclimated on a prototype, an inverter. You know, they were planning to accomplish their own, they bought one for a demo. That affectionate of affair is no big accord aback you’re a start-up and you’re scrambling, but there were some added austere things. Their aboriginal prototype, the Nikola One, which is this big white semi-truck that was said to be absolutely functional, was not absolutely absolutely functional. Now, that was aback in 2016 that they showed that. They accept aback apparent trucks that are absolutely functional.
But the botheration here, from Nikola’s perspective, is they didn’t appear out appropriate abroad swinging. The address sat there for a brace of days; bodies digested it. Trevor Milton said some things on Twitter that were not abnormally helpful. And so, it absolutely got its anchor on the bazaar and the banal went bottomward and it has been still activity down. It was bottomward aftermost I looked today, so.
Sciple: Yeah. So, aftermost I checked, and you apperceive this is a actual airy stock, so accountable to change, but the shares were bottomward about 50% aback the short-seller report. There’s additionally been letters that the SEC and the Department of Justice accept additionally opened some inquiries in response. The big affair for me is aback you saw Nikola’s response, it was actual acutely drafted by counsel. And were not any absolute refutations of any of the allegations; in particular, the big one that a lot of association accept talked about this abstraction that Nikola, in adjustment to appearance that their barter was operational, formed it decline adjoin absolutely accepting a alive agent and powertrain in the vehicle.
And afresh I anticipate what bags on top of this, as we were talking about afore we started recording, is that actual anon thereafter you accept this antecedent acknowledgment from Trevor Milton, the Architect and Chairman of Nikola, adage we’re activity to abnegate all these allegations one-by-one and cowards run. And then, on Monday, September 21st, Trevor Milton resigned. And afresh the actual abutting day he deleted his Twitter annual after any announcement. This is accession who had been very, very, actual alive on Twitter in responding to shareholders and responding to some of these allegations.
When you saw the acknowledgment from Trevor Milton here, John, what was your reaction?
Rosevear: As we were adage afore we started the podcast, we should agenda that Trevor’s abandonment came out at 2:20 AM Eastern, Monday morning. I mean, they were acutely hashing this out all weekend. And a brace canicule after Nikola filed a deal. Basically, Trevor agrees to aces up and go abroad and not say anything. And, yeah, we saw him annul his Twitter account. It has absolutely been absolutely something.
The acknowledgment — my two cents booty on the acknowledgment aback they alone it was, OK, aboriginal of all, attorneys wrote this, as you said. Second of all, yeah, there were some smoke-and-mirrors aback afore 2017 or so, but not since. And besides, short-sellers are abominable people. I mean, that was affectionate of the address and that’s about [laughs] what I said on Twitter, actually; if bodies chase me on Twitter, I acclimated a altered chat than “awful people,” but that’s about what it was. What it wasn’t was a absolute point-by-point acknowledgment of the Hindenburg report, which is what Trevor Nichols, Trevor Milton — I accumulate absent to alarm him Trevor Nikola — Trevor Milton promised …
Sciple: Tim Apple.
Rosevear: [laughs] … yeah, I am. Yeah, Tim Apple. Steve Apple. Exactly. And the address went added and, array of, shows that conceivably Trevor Milton was article of a smoke-and-mirror artist, shall we say; and I anticipate it got a little personal. But again, they did not appear out accepted to anon abnegate it. What we heard was, Stephen Girsky, who is the above GM Vice Chairman who led the special-purpose accretion aggregation that took Nikola public, basically said, we angle by our due diligence. GM came out and said, yeah, we angle by our due diligence. So, you affectionate of wonder, who knew what, when, where, why, and how here. But as of today, Trevor is out and, you know, they’re ambit the wagons a little bit. The administration aggregation has been agilely talking to institutional investors saying, we’re activity to go on with the plan, we’ve got banknote in the bank, we’ve got these partnerships, aggregate is accessible to go. GM reaffirmed a brace of times that they would abide to assignment with Nikola aback Nikola was accessible for that.
Another partner, Robert Bosch, the big European auto supplier, said they are continuing to assignment with Nikola. But bygone or the day before, we had a address that aback this short-seller address dropped, they were on the border of a accord with BP, area BP was activity to body their hydrogen refueling base network. And BP basically put aggregate on authority aback that dropped; and we don’t apperceive the accompaniment of that and we don’t apperceive the accompaniment of their talks with added abeyant partners, but obviously, it appears they can’t do abundant on their own because they don’t accept abundant on their own. I mean, they accept an engineering team, they accept sales folks, they accept some basal accumulated infrastructure, but they don’t accept any super-secret booze technology. One key of their business plan was that they could accomplish hydrogen absolutely cheaply from accustomed gas. Whether they can absolutely do that or not charcoal an accessible question, it’s not article they’ve addressed, but the actuality that they haven’t addressed it is absolutely suggestive.
A lot of things are up in the air appropriate now. A Wedbush analyst came out this morning, downgraded the stock, and said there’s a aphotic billow blind over Nikola appropriate now, and until that billow is dissipated, it’s adamantine to apperceive what it’s account here. And I aboveboard accede with that assessment. [laughs]
Sciple: I’ll acquaint you, from my point-of-view it about feels like, this company, that alike afore the short-seller address came out, aback we’ve discussed it is, there’s a lot of execution, they don’t accept a barter yet that’s produced in volume; they’ve got to bear this artefact for customers. And I’d say, at this point aback you attending at what are the assets they hold, what differentiates them? To me, it aloof seems as admitting it’s affectionate of a brazier of money that can be allocated toward, you know, renewable electric cartage and that array of thing. And that money has been aloft and needs to be deployed in some capacity, I anticipate that’s allotment of what explains why GM is afraid by this deal, because this is still basic that can go into affairs articles from GM.
But again, there’s not activity to be appeal for the trucks if you don’t accept refueling stations. And so the catechism is, area are these partnerships activity to appear from? And I anticipate there’s a lot of pressure; you mentioned Stephen Girsky is demography over as Chairman, he is now in the administration role actuality to appropriate the address and to prove there’s article there abaft the company.
What aplomb do you accept in these association to appropriate the address and what do you appearance is the approaching of the business here?
Rosevear: Well, Girsky is a austere person, OK. [laughs] He’s not, you know, I mean, somebody is like, oh, pump-and-dump game. And I’m like, no, that’s not Stephen Girsky. Stephen Girsky is accession who has a actual big rolodex in the auto industry and is taken actively by, amid added people, Mary Barra. This is apparently why GM came in, Girsky was the Vice Chairman of GM at one point. But my booty is, they accept the basal of a business. I mean, they accept the partnerships to body the truck. What they accept is that a lot of the assignment has been done to get adjoin architectonics the truck. They accept a armpit for a factory, I anticipate they’ve burst arena on the factory, the ability in Arizona that they’re activity to use to body out the abundant trucks, the semis, they accept the accord with GM.
Because of that smoke, it’s not absolutely bright what pieces are missing; at atomic not to me appropriate now. But they assume to accept the basal of a business, and absolutely they are not bankrupt, accepting aloof put $600 million, $700 actor in the bank, they absolutely accept the banknote to go adequately able-bodied alternating with this. But yeah, there’s a believability issue, and I anticipate what has to appear is the administration aggregation that exists now after Trevor, needs to move advanced abundant to reestablish some credibility. And you know, I’m not abiding how they’d do that.
GM continuing up and saying, yeah, we’re afraid with them, helps somewhat, but afresh everybody backs up and says, yeah, but GM doesn’t absolutely accept any banknote at accident here. [laughs] You know, there’s a actual tiny reputational accident here. And honestly, that hit has already been taken. [laughs] And GM doesn’t affliction a accomplished lot about that actuality appropriate now anyway; I don’t anticipate Mary Barra is accident beddy-bye over Nikola. For GM, it’s a authentic opportunity, appealing much. And the 10% or so pale is a benefit that ability or ability not pay out some day. That will, at minimum, pay for the development work, if they do it and the barter sales don’t go anywhere; the auto truck.
So, to aback up and acknowledgment your question, there’s the basal of the business here. A few of the analytical partnerships they need, do they accept all the pieces, no, I don’t anticipate so. I anticipate BP was activity to be a big piece. It may about-face out that a ages from now, you know, Steve Girsky and BP assortment out a accord area BP feels safe preceding, and there’s a assisting befalling for them and they move advanced with that. And that from that aphotic billow may appear a aggregation that isn’t admired at $30 billion or $40 billion or $50 billion or whatever, but that is a applicable aggregation alive adjoin a bazaar opportunity. And if annihilation else, a year or two advanced of anybody who ability alpha up appropriate now.
Sciple: Yeah. So, John, aback you say that, it reminds me of a aggregation that we all talked about, about a year ago, that affectionate of was developing this new innovation, that had a actual blatant founder, that had had a absolutely aerial countdown in its banal amount and afresh that architect had larboard brief with a big brazier of money, abrogation abaft a aggregation that maybe has a future, but we catechism its viability, and that was the WeWork adventure with Adam Neumann. In that story, a year ago, SoftBank ashore by that company, a aggregation that burst from, I accept it was a $47 billion appraisal bottomward to the distinct digits billion. And you’ve got a agnate affair with Nikola, area the appraisal burst from college than Ford, about $30 billion, to now, yeah, I anticipate it was $6 billion this morning, who knows area it is by the end of the day. Do you anticipate that WeWork allegory is fair?
Rosevear: Well, I didn’t attending absolutely carefully at WeWork, but my compassionate is that there may not accept been a viable, profitable, acceptable business beneath all of the blithesome Adam Neumann talk. What I can acquaint you, alive this amplitude a lot bigger than I apperceive the bartering absolute acreage space, is that there’s a bazaar for, you know, blooming big rigs, there is a bazaar there, there is appeal for them, there are fleets who would like to be affairs them now if they are cost-effective, if you can show, over the absolute lifetime of the vehicle, that it’s not activity to amount them a ton added money than a agent rig that they’ve gotten serviced today.
So, whether Nikola is a actual applicable business or not; I mean, it has to plan to aftermath products, for which there is absolutely a market, at the appropriate price. I anticipate it depends on how able-bodied they can assassinate in agreement of amount and pricing. Certainly, accepting their ammunition beef from GM saves some both time and money and could conceivably lower the amount for the ammunition corpuscle trucks. You know, the batteries will be competitive. GM’s Ultium batteries are accepted to appear in at or abreast the beginning of the industry aback they barrage abutting year, or whenever it is; I anticipate it’s abutting year. So, again, there are the basal of that. But if you’re accomplishing this all by advantageous partners, your own allowance isn’t activity to be all that abundant at the end of the day, if you accept to bear to a price.
So, I assumption what I’m adage is, there are a lot of banking affective parts. And whether this works or not charcoal to be seen. But there’s appeal for the artefact they appetite to body and they accept a aisle to architectonics the product, whether they can body it at a amount that will amuse the appeal with added entrants, alignment from, you know, Tesla talks about it semi, but Freightliner, which is endemic by Daimler, is additionally architectonics electric semis and they additionally accept some ammunition corpuscle technology, and there are a lot of added entrants eyeing this space, both, big and small. There’s a aggregation we’ve talked about actuality alleged Highlands, which is alive to body ammunition corpuscle drivetrains or electric drivetrains of assorted kinds, that can be adapted into absolute Class 8 semis; tractor bivouac trucks. And that ability be the way to do this, area companies like Freightliner and Mack and Peterbilt and so alternating abide to body the big rigs, but instead of installing agent engines from Cummins, they install amalgam accustomed gas-powered or ammunition corpuscle powertrains from companies like Highlands. That ability be the path.
I don’t apperceive that Nikola has the best path, but again, I do apperceive that they have, what looks on cardboard to be a applicable plan to aftermath a artefact for which there is and will be demand, it all comes bottomward to how able-bodied they can amount it and how able-bodied — as we’ve been adage about Nikola aback March — how able-bodied they can execute.
Sciple: Yeah. So, one added aggregation I’ll acknowledgment is, I accept Hyundai is starting testing on their ammunition corpuscle trucks, I believe, in the U.S. abutting year. And, yeah, I anticipate the big takeaway from what you said there, John, is Nikola and I anticipate to the admeasurement that this bleeds over into the area from a anecdotal perspective, but Nikola has gone from a aggregation actuality admired on its abeyant how big the bazaar could be in the future, to what it absolutely has appropriate now. And I anticipate that’s partially to do or in ample allotment to do from the animated ablaze that the short-seller address put on the company.
We’ll see area the area goes from here, but clearly, whether from governments or businesses absent to be added green, there’s some appeal to move these trucking infrastructures adjoin added blooming solutions.
Rosevear: Yep. [laughs] And there’s a lot of demand. I mean, they apperceive they accept to apple-pie up their act. We saw California wants to end sales of gasoline-powered cars, there’s regulations advancing like this for trucks and they’re advancing all over the world. And the industry knows that it can’t run agent consistently and they’re afraid to move to the abutting thing, so that they can abide applicable businesses that abide to accomplish acceptable profits affective goods. You know, trucking is a account we charge until we ad-lib article better, so somebody has got to do this, somebody has to access this business, by mid-decade somebody has to be affairs these trucks.
There are a few people, a few companies, both accustomed players and new entrants like Tesla — Tesla isn’t absolutely new, but they would be a new aspirant in abundant trucks — angling for a allotment of this market, which everybody seems to be basic by 2025 or so. Nikola could be amid the first-movers, if they can cull up their bootstraps and get affective actuality again, but we don’t apperceive that yet.
Sciple: Yeah, we shall see. I anticipate this is a absolutely difficult PR hurdle to get over as an organization; not to acknowledgment the beheading risk. I anticipate about, like, an amateur aback there’s ball activity on in the press, right? It’s like, it’s difficult abundant to win a championship and afresh you’ve got all the alfresco things affecting you.
So, we’ll be afterward that story, we’ll be afterward this accomplished area as it develops. And, John, we’ll be aflame to accept you on afresh in the approaching to breach it all down.
Rosevear: All right. Acknowledgment actual much, Nick.
Sciple: As always, bodies on the affairs may own companies discussed on the show, and The Motley Fool may accept academic recommendations for or adjoin the stocks discussed, so don’t buy or advertise annihilation based alone on what you hear.
Thanks to Tim Sparks for bond the show. For John Rosevear, I’m Nick Sciple, acknowledgment for alert and Fool on!