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“I don’t care that they stole my idea… I care that they don’t have any of their own”. So said Nikola Tesla, the famous engineer and inventor of the 18- and 1900s so associated with progress in the world of energy.
Of course, his name is also notable for it being used as the brand of a particular electric vehicle production company in America…no, not that one, the other one.
Nikola perhaps didn’t steal any ideas, but they were certainly one of the businesses to ride the coattails of the originals, and now become one of several which have disappeared from the EV sphere, the stock market, indeed the entire world soon enough. And, while stealing ideas wasn’t an issue, embellishing the ones they had was.
A US-listed organisation which was valued at over $30bn (£23.8bn) under five years ago, Nikola yesterday filed for bankruptcy protection after having all-but run out of cash, accruing huge debts and producing far too few actual vehicles.
Like others EV manufacturers, “market and macroeconomic factors” impacted Nikola, said CEO Steve Girsky. With the company having promised thousands of vehicles when it floated, both battery-powered and hydrogen fuel cell powered, Nikola ultimately delivered fewer than 400 trucks last year. From being valued in the same range as Ford, shares sunk on Wednesday to below 50 cents.
As far as stock market hype stories go, it’s certainly a cautionary tale as well as a disappointing one.
Internal and external problems alike
Nikola now has a cash balance of just $47m, but debts of over $350m. The company has tried “to raise capital, reduce our liabilities, clean up our balance sheet and preserve cash to sustain our operations,” but has been unable to do so, added Mr Girsky. A sell-down of assets and intellectual property remains its only course of action to preserve some value for creditors, then the company will effectively cease to be, beyond some support for trucks on the road.
There are so many factors at play here it’s impossible to pick out the one most to blame, but along with the EV market not growing as strongly as hoped, Nikola had its own internal issues.
A report from short selling hedge fund Hindenburg Research accused Nikola of faking progress regarding their trucks and, ultimately, Nikola’s founder Trevor Milton was arrested and has been sentenced to four years in prison, a decision that the FT notes remains under appeal. The company also paid out $125m (£99m) in 2021 to settle a case against it by the SEC, with the Guardian reporting Nikola did not admit any wrongdoing.
In June 2020 the company floated on the Nasdaq exchange and on the third day of trading the share price surged over 100 per cent.
Talk of billions of dollars worth of orders and expectation fuelled mega hype that this EV maker could challenge Tesla and others; instead it has lost 99.7 per cent of share price value over the past year.
Wednesday’s 39 per cent drop from what was already then a 99 per cent 12-month loss merely serves as a reminder that no matter how low shares go, there’s always the possibility for another drop – or total wipeout.
Future legacy
Danni Hewson, head of financial analysis at AJ Bell, reasoned that in another political landscape there may have been a turnaround story, but instead they go the way of Fisker, Arrival and Lordstown Motors.
“For a time, Nikola was the poster child of EV usurpers. An investor favourite, it looked like the real deal and even vied with Ford for market cap. Buoyed by interest from General Motors, it was lapping other pandemic start-ups. But then came allegations of fraud which sowed more than a few seeds of doubt and most certainly played a part in GMs sudden lack of interest,” said Ms. Hewson.
“Whether the tarnished company could have turned things around if interest rates hadn’t shot up and if EV take-up in the US had been as fulsome as had been predicted is for business students to weigh up in time, but with many of its pandemic cohort such as Lordstown Motors also hitting the skids it’s clear it would have been a difficult job to do.
“What’s also clear is that sentiment about EVs in the US was already shifting even before the return of Donald Trump to the White House, with many legacy automakers rolling back their electric dreams. The sheer scale of those long, winding highways means building the infrastructure needed to facilitate a large-scale EV revolution will be a hugely expensive task, and one that will require businesses and politicians to share in the determination to get the job done.”
As for the long game in the EV battle, Ms Hewson notes that Nikola’s IP “could present an opportunity” in the future, for the work done so far particularly in the hydrogen trucks sphere.
But a lack of commercial success there and the practical problems with putting infrastructure in place for widespread success means that remains very much a long-term dream, for now. It certainly didn’t come soon enough for Nikola, or for those who invested in it.
Another Nikola Tesla-attributed quote is: “You may live to see man-made horrors beyond your comprehension.”
While the fall of any particular business (probably) isn’t quite what he had in mind, it might be the way the remaining Nikola shareholders are feeling these days.