Depending on what you’ve read about electric truck company Nikola, its founder Trevor Milton is either the new Elon Musk or the next Elizabeth Holmes. The company, once lauded as ushering in a new clean energy era for the trucking industry, now faces accusations of deception and outright fraud. On Sunday, Milton stepped down as executive chairman, over allegations that he’d wildly overstated the company’s technological capabilities.
The claims stem from a report by the short-selling firm Hindenburg Research. Its authors allege Nikola’s “proprietary technology” was really cobbled-together parts from other companies. A video of a Nikola truck rolling down a hill was staged, the report says. According to Hindenburg, the company “had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.” In the wake of the report, Nikola’s stock fell significantly, securing big profits for Hindenburg, according to The Wall Street Journal.
The news rocked Milton’s image, which had been carefully molded in the vein of Steve Jobs and Elon Musk. In 2019, a Forbes article described him as a “lifelong garage tinkerer” who’d dropped out of college, then traveled to Brazil on a Mormon mission. The trip “got him thinking about wider problems, particularly environmental ones,” reads the Forbes piece. In 2010, he started a company to design natural gas fueling systems.
The coverage was typical for the company prior to the summer of 2020. Nikola was compared to Tesla, both helmed by founders who built on the legacy of the Serbian-American inventor to transform the electric car industry. “Nikola Motor Company CEO plans to revolutionize trucking” proclaimed a headline from March in one trade journal. “From disruptor to leader? Trevor Milton on Nikola’s strategy for 2020 and beyond,” read another. When Milton bought a $32.5 million ranch in Utah, publications from the Los Angeles Times to Business Insider documented his billionaire lifestyle.
The pattern is familiar to those who followed the rise and fall of blood-testing startup Theranos. Like Milton, Elizabeth Holmes was a college dropout who’d landed in a wildly complicated field and somehow revolutionized it overnight. The media coverage surrounding the startup insulated it from close scrutiny and helped it reach a valuation of $9 billion before it was revealed to be a fraud.
In the aftermath of the Theranos scandal, it seemed possible that the age of founder worship was coming to a close. “Treating CEOs as if they were born on the planet Krypton also leads to, among other things, their being paid too much money and granted too much power,” wrote The Wall Street Journal in 2018. Two years later, Milton’s sudden demise shows the tech press hype cycle hasn’t stopped.
In September, General Motors bought a $2 billion stake in Nikola, despite the fact that the company had almost no revenue, and had never produced a single truck, according to The New York Times. The move “briefly pushed Nikola’s market value above that of Ford Motor Co.,” reported The Wall Street Journal. It was likely predicated on GM’s desire to catch up to Tesla in the field of electric vehicles.
When Bloomberg journalist Edward Ludlow wrote a story claiming Milton had “exaggerated” the capabilities of his debut truck, Milton threatened to sue. “This is sad,” he tweeted, according to screenshots included in the Hindenburg report. “@EdLudLow should be let go.”
Ludlow might have introduced doubts in Milton’s credibility as a leader, but it still seemed possible the startup and its founder would pull through. On Twitter, Milton played into the role of beleaguered founder battling an irresponsible press.
Then, on September 10th, Hindenburg released its report, and the Securities and Exchange Commission got involved. The regulator, along with the Justice Department, launched a probe to see if Nikola had misled investors. The company’s shares fell 33 percent in two weeks, according to The Wall Street Journal. Milton had no choice but to resign.
According to the Hindenburg report, Milton really did deceive investors. But it’s worth pointing out that funding, particularly in Silicon Valley, often involves a fair amount of speculation. The gap between what a company can do today and what it says it can do in the future is where investors profit — so long as the gap is eventually closed. If the company never reaches its goal, it’s revealed to be at best a failure and at worst a scam.
Nikola released a statement calling the Hindenburg report “false and defamatory” and said it was designed to manipulate the market, in order to make money for the short-sellers. The research contained a “number of false and misleading statements,” the company wrote. It was “a hit job for short sale profit driven by greed.” In response to a request for comment from The Verge, the company sent links to previously published remarks.
In a statement emailed to The Verge, Hindenburg wrote: “We published 67-pages of well vetted research that identified numerous false statements issued by the company. The company ignored the majority of the questions we raised. Of those it addressed, it largely confirmed our findings. The company’s Founder and Executive Chairman promised a full rebuttal and instead resigned and deleted his social media accounts.”
The report did help Hindenburg financially — and I don’t think it’s inaccurate for Nikola to say that was the goal. Reading through the research, which includes emails and text messages from former employees, it’s clear the firm operates in a zone between journalism and activism, using investigative methodologies to build a narrative for financial gain.
Journalists don’t do that — there’s a reason we can’t take sources out for coffee or pay people to give us good tips. But in Silicon Valley, where the media has been complicit in building up the founder persona, there might be room for a different type of investigator, one that doesn’t get distracted by allegations of financial motive or bias.
When Elizabeth Holmes was outed by a series of articles in The Wall Street Journal, she fought hard to discredit the narrative. In the years since, this tactic has been cemented by founders who frame negative press as smear campaigns from irresponsible journalists.
Nikola is using similar tactics on Hindenburg, pointing out that the firm is in it for the the money. Hindenburg’s incentives as a short-seller are out in the open, though. Instead of decrying negative press, Nikola might spend more time explaining what in the report is untrue.
But that’s consistent with the founder-first playbook that Nikola and other tech companies have been following for years: put the emphasis on the person selling you something, rather than scrutinizing what they’re trying to sell you.
Correction: An earlier version of this story stated GM took a $2 billion stake of Nikola in June. It has been updated to September.