Nikola Corp. founder Trevor Milton faces severe financial penalties and jail time if found guilty of federal charges that accuse him of making fraudulent statements that misled investors. His legal woes are also ratcheting up pressure on the startup to get its first electric trucks into production this year and convince skeptics it remains on a path to commercial success.
Mark Russell, Nikola’s CEO since it went public in June 2020, tells Forbes a key part of his job right now is keeping the Phoenix-based company focused on business targets set earlier this year, starting with shipments of battery-powered Tre semis. Reviews of Nikola by the Securities and Exchange Commission and Justice Department—begun last year after allegations by a short seller of the stock that Milton made numerous false statements about the company—were already a “potential distraction,” Russell said in an interview a few days before Milton’s indictment.
“It’s been a top job for me to keep everybody focused on the things we all agree are the top priorities,” he said. Following those first deliveries of Tre trucks, built at a new assembly line Nikola set up at the Ulm, Germany, assembly plant of its commercial vehicle partner IVECO, the company is to begin producing them at its new plant about an hour away from Phoenix next year. It’s also preparing to get its hydrogen-powered trucks on the road by late 2022, and ramp up production of them and the hydrogen fuel they’ll need from renewable sources by 2023.
Since Milton’s departure from the company in September 2020, Russell has tightened Nikola’s focus to big trucks and fuel, scrapping side-projects including the Badger pickup truck, electric watercraft and an electric all-terrain vehicle.
The company will provide updates on its plans and outlook later this morning, when it discusses second-quarter results with analysts. Milton’s legal situation and its impact on Nikola will likely dominate the Q&A portion of the conference call. The U.S. Attorney’s Office in Manhattan charged Milton on July 29 with two counts of securities fraud and one count of wire fraud. He pleaded not guilty to the charges and was freed on $100 million bail. The SEC also filed a civil suit against him alleging securities fraud.
Nikola is not yet generating revenue as vehicle production hasn’t begun. It’s expected to report a loss of 29 cents a share for the quarter that ended June 30.
Regardless of potential exaggerations by Milton about the market-readiness of Nikola’s technology its goals to shake up the heavy-duty vehicle market are highly ambitious. Nikola is not alone in readying high-tech electric trucks for the commercial market. Competitors including Tesla, Toyota’s Hino, Volvo Trucks, Daimler and Hyundai Motor are all readying their own battery or hydrogen models. Nikola’s pitch to customers is that it will be the first to also produce large amounts of hydrogen from low- and no-carbon sources and dispense that fuel them at stations it operates and at a price that’s cheaper than diesel fuel.
Nikola seemed to be making some progress on the latter goal this year, announcing a string of deals on the fuel infrastructure side, including a contract to buy cheap electricity from Arizona’s utility grid, a partnership in Europe to create a hydrogen pipeline in that market and its $50 million investment in a hydrogen project in Indiana, that will make the clean fuel from petroleum coke and other waste materials, and sequester carbon produced from the process.
Continuing to move forward with those and other initiatives will likely require additional funds that may be harder to come by in the months ahead, because of Milton’s circumstances. At this point, it’s unclear whether existing Nikola partners, such as Iveco and Bosch, or anchor customer Anheuser-Busch would be willing to provide additional financial support.
Milton’s news “underscores the primary risk surrounding the (Nikola) story, that of pending criminal and class action securities litigation, which present a major potential liability and liquidity risk to the aspiring vehicle manufacturer,” Garrett Nelson, an equity analyst for CFRA, said in a note last week. He lowered his rating on Nikola shares to a strong sell as a result, because “in our view, there are likely to be additional negative headlines in the near-term.”
Russell says the company has cooperated with the SEC and DOJ throughout their review. And as for communication with Milton, it’s been “only through his counsel” since he left the company last September.
Nikola fell 5.8% to $11.18 in Nasdaq trading on Monday. It’s dropped 21% since news of Milton’s indictment broke on July 29.