Nikola (NKLA) Provides Comprehensive Response To Hindenburg Research Report

By Amit Chowdhry ● Sep 14, 2020
  • Nikola Corporation (NASDAQ: NKLA) has issued a comprehensive response to the Hindenburg Research report about its business practices.

Nikola Corporation (NASDAQ: NKLA) has issued a comprehensive response to the Hindenburg Research report about its business practices (details about it here).  Nikola said that the report by Hindenburg Research is “false” and “defamatory.”

“Nikola believes that the Hindenburg report, and the opportunistic timing of its publication shortly after announcement of Nikola’s partnership with General Motors Co. and the resulting positive share price reaction, 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,” said Nikola in its response. And Nikola has contacted and briefed the U.S. Securities and Exchange Commission (SEC) regarding its concerns pertaining to the Hindenburg report.

Nikola said it has been through extensive due diligence processes, starting with Bosch in 2017, Hanwha Group, and ValueAct Capital in 2018, CNH Industrial N.V. in 2019, and VectolQ Acquisition Corp. and General Motors in 2020. And the company said it remains laser-focused on laying the groundwork toward becoming the global leader in zero-emissions transportation. Plus Nikola said it is continuing to make significant progress on its strategic initiatives — which includes Nikola Tre Semi-Truck Production and the Nikola Two Hydrogen-Electric Powered Semi-Truck Development.

The Nikola Tre Semi-Truck Production is a pioneer battery-electric semi-truck created in collaboration with IVECO through a joint venture established in 2019 for the short haul trucking sector and is expected to be available for customers by Q4 2021. And the Nikola/IVECO joint venture has enabled dedicated focus toward delivering the Tre in 2021. The Nikola Tre is a zero-emission semi-truck with over 720 kWh of battery and an about a 300-mile range.

And in 2021, Nikola will begin testing a pre-production Nikola Two, a hydrogen-electric powered semi-truck for the medium and long-haul trucking sectors with over 1,000 horsepower and 2,000 ft. lbs. of torque. Anheuser Busch LLC had previously announced its placement of an order for up to 800 trucks with a prototype to be delivered by the end of 2021, testing planned for 2022, and a production version expected in the second half of 2023.

In November 2019, a fuel-cell electric driven Nikola prototype had completed a zero-emission beer delivery for Anheuser-Busch on public roads while operating on hydrogen. And as previously announced, Nikola received a minimum order of 2,500 electrified refuse trucks from Republic Services with on-road testing likely to begin in early 2022 and full production deliveries expected to begin in 2023. Last week, Nikola also announced that it formed a strategic partnership with General Motors under which General Motors will engineer, homologate, validate, and manufacture Nikola’s Badger pickup truck — which will include variants with all-electric and hydrogen fuel cell powertrains. The Badger production is expected to start in late 2022.

Nikola’s Stance On The Hindenburg Report

Nikola said that Hindenburg is “an activist short-seller financially motivated to manipulate the market and profit from a manufactured decline in Nikola’s stock price.” And Nikola said that the report contains a number of false and misleading statements regarding the Company’s operations and multi-year, groundbreaking R&D efforts. Nikola cited the following examples:

1.) Hindenburg Mischaracterizes Quote by Bosch Employee

After the publication of the short-seller report, Bosch said: “Specific instances in the (Hindenburg) report quoting a Bosch employee were taken out of context.”

And Bosch also stated: “The employee spoke only about Bosch’s own plans for the IAA industry show and H2Haul project for the European Union.”

Nikola and Bosch have been aligned on the product roadmap for the Tre truck. The 5 trucks are currently being built and commissioned in Ulm, Germany and are pre-production builds.

2.) The Report Alleged That Nikola Buys and Does Not Make Inverters In-House

Nikola said that in the report, Hindenburg misrepresented that Nikola is claiming a third-party inverter is the company’s own technology by placing a sticker over the supplier’s name.

In response, Nikola said that at no time did the company state that the inverter on the prototype truck shown in the video was the company’s or would be used in production. And Nikola has been designing, engineering and working on its own inverters for quite some time.

The company does use third-party parts in prototype vehicles — some of which may be subsequently swapped out for its own parts in production. Nikola pointed out that this is common practice among vehicle manufacturers and Nikola often blocks supplier names from the view of media and competitors.

3.) Hindenburg Misrepresented Nikola’s Historic Position on Battery Technology

The report claimed that Founder and Executive Chairman Trevor Milton made false statements regarding the company’s battery technology following the breakdown of its transaction discussions with ZapGo Ltd.

Nikola said that the potential battery technology advancements are related to an ongoing confidential R&D partnership with a leading academic institution rather than ZapGo. And Nikola said it is “excited about potential breakthroughs related to its next generation battery technology.”

4.) Hindenburg Attempted To Link Departure Of Former CFO With Nikola One Deposits Announcement

In the report, it was mentioned that Nikola’s former CFO Jonathan Spira was terminated by the company. And his departure, as well as subsequent litigation (which was voluntarily dismissed), were unrelated to the company’s announcement that it would refund Nikola One reservation deposits, Nikola responded.

“We don’t use your money to operate our business. We want everyone to know we have never used a dollar of deposit money in the history of our company,” wrote Nikola in a tweet in April 2018. Nikola added: “Any innuendo by the short seller report that these separate events were connected and indicative of questions regarding Nikola’s use of deposits is inaccurate.”

5.) Hindenburg Research Alleged That The 2016 Nikola One “Was Not A Real Truck And Was, In Fact, A Pusher”:

Nikola said that the Nikola One is a real truck that sits in Nikola’s showroom. “A pusher means a vehicle that was not designed to be moved by its own propulsion system. The Nikola One was, in fact, designed to be powered and driven by its own propulsion,” added Nikola.

Nikola added several other facts to this response including a.) Gearbox was functional and bench tested prior to installation. b.) Batteries were functional. c.) Inverters functioned and powered the motors on a bench test prior to the show. d.) Power steering, Suspension, Infotainment, Air Disc Brakes, High Voltage, and Air Systems were all functional.

When Nikola pivoted to the next generation of trucks, it decided not to invest additional resources into completing the process to make the Nikola One drive on its own propulsion. And after pivoting, Nikola produced prototypes for the Nikola Two— which are self-propelled and have been frequently demonstrated, starting with demonstration runs at Nikola World in April 2019.

6.) Hindenburg ‘Distorts’ Nikola One 2017 Third-Party Future of Transportation Promotion Video:

Hindenburg reported that Nikola was misrepresenting the capabilities of the Nikola One prototype in a 2017 video produced by a third party as being “filmed rolling down a big hill.” Nikola said that its truck was driving under its own propulsion in the video.

Here is how Nikola responded to that:

“The truck was showcased and filmed by a third party for a commercial. Nikola described this third-party video on the company’s social media as ‘In Motion.’ It was never described as ‘under its own propulsion’ or ‘powertrain driven.’ Nikola investors who invested during this period, in which the company was privately held, knew the technical capability of the Nikola One at the time of their investment. This three-year-old video of a Nikola prototype is irrelevant except for the fact that the short seller is trying to use it for its main thesis. The fact is, Nikola has real working hydrogen fuel-cell powered semi-trucks. Any reports intended to suggest that Nikola’s trucks do not drive are erroneous.”

7.) Hindenburg Underestimated Extent Of Hydrogen Production Capabilities:

Nikola said that it continues to believe that its planned hydrogen station network and the production and distribution of hydrogen will provide key competitive advantages that drive sustained profitability and shareholder value over the long term. And Nikola representatives occupy leadership positions in industry organizations, including as working group chairs within the worldwide International Standards Organization (Heavy Duty) hydrogen fueling standard development and the Society of Automotive Engineers fuel cell standards committee for the HD vehicles’ fuel economy.

The company has partnered with one of the most well-known hydrogen experts in the world called Nel ASA. And Nikola has already installed a 1,000 kg hydrogen storage and dispensing demo station at its headquarters and ordered over $30 million of electrolyzers to support the initial hydrogen station rollout.

8.) Hindenburg Alleged NZT Program Was Scrapped After Unveiling

Nikola said that the program remains underway. And the first NZT enclosed cab display model is sitting in Nikola’s showroom at its headquarters. The company also spent millions of dollars preparing the NZT enclosed cab version for production using both internal and external resources. More will be revealed at Nikola World 2020.

9.) Hindenburg Quoted Spokesman of Fuel-Cell Competitor Powercell AB As Saying Nikola Battery and Hydrogen Fuel-Cell Technology Is “Hot Air”

Nikola said that third-party competitor views of Nikola and the company’s technology are not relevant.

10.) Hindenburg Took Shots At Nikola Employees

Nikola said that it believes in talent and each of the employees unfairly described in the short seller report are making important contributions to the success of the company. For example, Nikola cited Kevin Lynk as a talented mechanical engineer who has specialized in computational fluid dynamics (CFD), finite element analysis (FEA), computer-aided design (CAD) and product data management (PDM). And Travis Milton (brother of Trevor Milton) previously owned and operated his own construction company preparing him for hydrogen station infrastructure and buildouts. Plus Dale Prows has more than 30 years of experience in supply chain and purchasing in the petrochemical and aluminum industries.

11.) Hindenburg Misrepresents Value Of 2010 Contract Between Swift Transportation And dHybrid Systems LLC:

Nikola stated that this agreement was from 2010 and has no connection with or association to Nikola. In the report, Hindenburg criticized Trevor Milton’s statements about the approximately $250 million value of the contract between Swift Transportation and dHybrid (not Nikola). And Hindenburg cited only selected clauses “to misrepresent the value of the contract as being worth ‘only $16 million.’ What Hindenburg fails to include are the provisions in the contract whereby Swift was granted an option to acquire up to an additional 11,700 systems at $20,000 per vehicle, bringing the total potential value of the contract to $250 million.”

Nikola also stated that there are dozens more inaccurate allegations made by the Hindenburg, which are not relevant to Nikola.

Disclosure: I own a small number of NKLA and GM shares in my portfolio