Nikola’s Founder Resigns and Share Slump Deeply
The founder of American electric car maker, Nikola Corp. (Nikola), Trevor Milton stepped down from the position of the executive chairman after allegations that he misled investors and engaged in nepotism. In a press release on Sunday, September 20, 2020, Nikola announced that Milton approached the company’s Board of Directors and proposed to “voluntarily” step aside from his post.
Nikola, founded in 2015, went public through IPO on June 4th with a mission to use hydrogen fuel cell technology to make its vehicles zero-emission. As per Bloomberg, the company witnessed a surge of its share values following the IPO and its capital value was higher than Ford.
Shares of the electric-truck maker fell nearly 30% on Monday, as per the Reuters report. Meanwhile, the United States (US) Securities and Exchange Commission is reportedly examining the charges against Milton while the founder said the allegations were false and he would defend himself against them.
A Report on Milton’s Fraud
Nikola was under intense scrutiny from US regulatory bodies after a report claimed the company had engaged in “lies and deception.” On September 10th, a short-selling firm Hindenburg Research released a report accusing Nikola of fraud and misleading investors shortly after General Motors Co. (GM) announced its plan for acquisition of an 11% stake in the electric vehicle company.
Submitting his voluntary resign, Milton claimed the report “false and defamatory” and said that it contained “dozens” of inaccurate statements. Milton published a statement on Twitter explaining his decision, “I plan to defend myself against false allegations leveled against me by outside detractors” and would be “cheering from the sidelines” for the company. Reflecting on other allegations against him, Milton stressed “The focus should be on the company and its world-changing mission, not me.”
The report alleged that Milton, who owned 25% of the company’s outstanding shares at the end of July, was also indulged in nepotism since he appointed his brother Travis, who had been assigned to lead a unit in the company despite lacking prior experience.
Nikola’s Shares Dipped Sharply
Following the letter of Milton’s voluntary retirement, Nikola named existing board member Stephen Girsky, also a former vice-chairman of GM, who will become Chairman of the Board. With the change of its board members, Nikola’s Chief Executive Officer, Mark Russell said, “We remain committed to delivering on our objectives and creating value for our shareholders.”
Urging GM to reconsider its proposal, Hindenburg said in a statement on Monday, “While founder Trevor Milton’s departure may give the appearance of a company that’s moving on, we believe this is only the beginning of Nikola’s unraveling.” Meanwhile, J.P. Morgan noted that Milton’s resignation could affect some of the existing partners and customer relationships but believed that Girsky could be the most suitable for the company after Milton moves.
With the new development, Nikola witnessed a sharp decline in its shares on Monday. Reuters reported that a brokerage RBC slashed its price target on Nikola by $28 to $21 after the news.