OK, a point by point on
Nikola's response (going in Nikola response order, not Hindenburg accusation order):
A) Status of trucks being built in Ulm:
The
Hindenburg report says:
In a July 2020 podcast, Trevor said of Nikola’s “Tre” truck: “We have five of them coming off the assembly line right now in Ulm Germany.” A spokesperson for Bosch, the manufacturing partner building the trucks, confirmed this month that they haven’t made any trucks yet.
Nikola responds:
The five trucks are currently being built and commissioned in Ulm, Germany, and are pre-production builds.
Smorg's take: "Coming off the assembly line right now" means the vehicles are in the final stages of completion. That was back in July. It's now September and those vehicles are still ON the line and still being built. In addition, the photographs Trevor shared show the vehicles are not that close to done, even now.
B) Inverters:
Hindenburg says:
Trevor claims Nikola designs all key components in house, but they appear to simply be buying or licensing them from third-parties. One example: we found that Nikola actually buys inverters from a company called Cascadia. In a video showing off its “in-house” inverters, Nikola concealed the Cascadia label with a piece of masking tape.
and
July 14th, 2020, revor walks viewers through the Powertrain for the Nikola Two. At the 29:30 mark Trevor begins describing the in-house inverters and how other OEMs are asking to use Nikola’s proprietary inverter tech:
“We do all the e-axle design in house. All the gears, the gear reductions. The thermal the cooling. Even the controls that go with it. And, also, the inverters as well. All inverters on the Nikola truck are probably some of the most advanced software systems that I know of anywhere in the automotive world. Why do I know that? It’s because other OEMs are asking us to use it.”
At the 7:02 mark, we can see the inverters up close. There is a relatively inconspicuous green piece of masking tape on the component...The inverter is not proprietary to Nikola. Cascadia Motion, a small company in Portland, offers such inverters off the shelf. The tape is covering the label which would normally show the product description and other specifications that make clear who built the component...
35) What OEMs have asked to use “your” inverters in their products?
Nikola Responds:
In its report, Hindenburg misrepresents that Nikola is claiming a third-party inverter is the Company’s own technology by placing a sticker over the supplier’s name. At no time did Nikola state that the inverter on the prototype truck shown in the video was the Company’s or would be used in production. 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. This is common practice among vehicle manufacturers and Nikola often blocks supplier names from the view of media and competitors. Every program is different as they require different specifications and validation.
These allegations by the short seller are false and misleading...
Smorg's take:
Trevor Milton's statements on the video are the ones that are misleading: Pointing the camera at and gesturing towards inverters that aren't Nikola's while talking about Nikola doing its own inverters and inverter software. Also note that Nikola's response is not that the 3rd party inverters
WILL be swapped out for Nikola's in-house developed parts, but that they
MAY swap them. Even Nikola's response to the accusations is using wiggle words!
And Nikola IGNORES Hindeburg's question as to what OEMs (plural in Milton's words) have asked Nikola if they could use Nikola's inverter and control technology.
C) In-House Battery Technology / ZapGo:
This is a hard one to summarize. Let's start with Nikola's defense:
The short seller report claims 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. In fact, the potential battery technology advancements are related to an ongoing confidential R&D partnership with a leading academic institution, not ZapGo. The Company is excited about potential breakthroughs related to its next generation battery technology.
That defense is not satisfying.
First, it doesn't address the
lack of change in battery technology statements from when ZapGo was signed until the lawsuit against ZapGo, nor does it address the lack of change in battery technology statements that one would expect would be tied to some R&D academic institution partnership.
Remember, as Hindenburg points out, Nikola issued a press release on the acquisition:
Nikola Corp | Nikola Corporation to Unveil Game-Changing Battery Cell Technology at Nikola World 2020
That Nikola press release states:
This month, Nikola entered into a letter of intent to acquire a world-class battery engineering team to help bring the new battery to pre-production. Through this acquisition, Nikola will add 15 PhDs and five master’s degree team members. Due to confidentiality and security reasons, additional details of the acquisition will not be disclosed until Nikola World 2020.
Note that the press release says
acquisition, not
partnership. The press release goes on to state:
Nikola will show the batteries charging and discharging in front of the crowd at Nikola World. The date of Nikola World will be announced soon but is expected to be fall of 2020.
Nikola did not address whether that demonstration is still going to happen this December.
Bad as that response is, it doesn't address the many other claims that Hindenburg makes. For instance:
The conversation about universities developing the battery tech took place a mere two weeks ago, but now, the company has announced that it will be using GM’s proprietary battery technology.
Nikola has not addressed why it's using GM's batteries if they have their own much better battery technology demonstrable in less than 3 months.
D) CFO Departure:
Hindenburg claims:
Nikola’s Former CFO Left and Sued the Company. The Entire Docket is Sealed—But A Month After the Lawsuit Nikola Suddenly Announced it Had Refunded All Truck Deposits.
Did They Ever Really Exist?
Nikola responds:
Nikola’s former CFO was terminated by the Company. His departure, as well as subsequent litigation (which he voluntarily dismissed), were unrelated to the Company’s announcement that it would refund Nikola One reservation deposits. As Nikola communicated via Twitter in April 2018, “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.” 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.
Smorg's take:
A "voluntary" retraction of the lawsuit sure sounds like they settled out of court. It's unfortunate that Hindenburg tied that to reservation deposits. If Nikola really did fire their CFO, that's a RED FLAG in an of itself, and Nikola should address why they fired him and what harm had been done to the company. This is probably a bigger story than the reservation deposits.
As it turns out, Nikola admits that after taking reservation deposits for the Nikola One, they decided not to build that vehicle. As Nikola says:
As Nikola pivoted to the next generation of trucks, it ultimately decided not to invest additional resources into completing the process to make the Nikola One drive on its own propulsion.
What's still not answered in that in a video from Marcus Lemonis, he asked Trevor about the differences between the Nikola One and the Nikola Two, and Trevor responds: "The One has a a sleeper cab."
which brings us to:
E) Is the Nikola One a pusher or a real truck?
Nikola says:
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. Here are the facts:
Gearbox was functional and bench tested prior to installation.
Batteries were functional.
Inverters functioned and powered the motors on a bench test prior to the show.
Power steering, Suspension, Infotainment, Air Disc Brakes, High Voltage, and Air Systems were all functional.
Smorg's take:
I don't even need to quote Hindenburg here. Again, Nikola is being misleading, even its own defense, by stating the vehicle was "DESIGNED" to propel itself. That doesn't answer the question as to whether it could propel itself, which now everyone must assume that it couldn't. And trying to redefine "pusher" as "designed" rather than what it actually could do is telling.
It's also ironic that Nikola is claiming as an achievement "Inverters functioned" when, as they admitted, those were not Nikola inverters!
Finally, Nikola doesn't address Hindenburg's claim:
We learned through emails and interviews with former partners that Trevor had an artist stencil “H2” and “Zero Emission Hydrogen Electric” on the side of the Nikola One despite it having no hydrogen capabilities whatsoever; it was built with natural gas components.
Note that in the above defense, Nikola doesn't refute this accusation about Nikola One's hydrogen capabilities.
F) The infamous truck video
This doesn't need much to be said. Here's Nikola's own defense:
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.”
Smorg's take:
Having a "third party" made the video doesn't excuse Nikola of any responsibility when Nikola itself released the video on its own officien channel and via press releases from the company. And we all know about the wiggle words "in motion."
G) Hydrogen Production:
Lots here:
Hindenburg says:
Trevor has claimed in a presentation to hundreds of people and in multiple interviews to have succeeded at cutting the cost of hydrogen by ~81% compared to peers and to already be producing hydrogen. Nikola has not produced hydrogen at this price or at any price as he later admitted when pressed by media.
Nikola says:
Nikola 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. 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 also partnered with one of the most well-known hydrogen experts in the world, Nel ASA. Further, 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.
Smorg's take:
Nikola's response is almost all future. It "will provide." They sit on committees. They have partnered. They have ordered.
The one thing they have done is to install a storage and fueling station (from NEL maybe). That does not address the actual production of Hydrogen nor at what cost.
H) NZT design scrapped
Hindenburg says:
April 2019: Nikola “Unveiled” a Next Generation Version of NZT Off-Road Vehicle
The Design Was Quietly Scrapped Within Weeks of the Unveiling Due to Manufacturing Challenges
Curiously, the new generation closed cabin version of the vehicle was vastly different from the open cabin version, which was set up on a track at the event for test drives. A video from the site showed the open version:
In fact, the closed cabin version was only a “mock up,” and lacked some of the luxury features Trevor described on stage, such as the A/C, which could not be accommodated behind the dashboard, according to a former employee.
Within weeks of the event, Nikola management scrapped the design for the NZT because the model was not manufacturable as visualized on stage, according to the former employee.
The company now faced “a massive redesign” before it could bring the NZT to market, they said.
Despite regularly claiming to develop almost everything in-house, Nikola quietly outsourced the NZT redesign to a small company called Stellar Strategy LLC. Stellar is staffed by former executives of Polaris, a well-known producer of off-road vehicles who had advised Nikola on the open cabin version.
Nikola responds:
The program remains underway. The first NZT enclosed cab display model is sitting in Nikola’s showroom at its headquarters. The Company has since spent millions of dollars preparing the NZT enclosed cab version for production using both internal and external resources. More to come at Nikola World 2020.
Smorg's take:
Nikola doesn't deny Hindeburg's actual claims! They don't deny the design needed "a massive redesign." They admit to using "outside resources" on the design. That the cab model sits in their showroom doesn't say that the production will be anything like it.
I) Powercell's take on Nikola's battery and fuel cell technology
Nikola says:
Third-party competitor views of Nikola and the Company’s technology are not relevant.
Hindenburg says (in part):
In 2017, Nikola signed a deal appointing Sweden’s Powercell AB as its primary supplier of hydrogen fuel cell stacks.
So, Powercell is not a "third party competitor," they were a second party partner.
J) Nikola employee background
Hindenburg says on Levin Lynk:
We reviewed Kevin’s biography on LinkedIn and found that prior to Nikola, he worked for 7 months designing oilfield products using CAD software, 3.5 years in software development, and prior to that spent 9 months repairing pinball machines.
Nikola responds:
Kevin Lynk is 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). Kevin has also played an instrumental role in the design and development of most Nikola vehicles since the beginning of the Company.
Smorg's take:
Nikola doesn't refute Lynk's background. There's no way for us to know his real capabilities, which may be better than his background indicates (I've seen that in engineer's I've met). However, Nikola doesn't point to patents or specific product achievements he has made.
Hindenburg says:
The company chose Dale Prows, who is described at the 13:20 mark in a video produced for investors ahead of the company going public, as “one of our hydrogen experts.”
Prows joined Nikola after spending almost 4 years as CEO and General Manager at a residential golf course in Idaho.
Nikola responds:
Dale Prows has over 30 years of experience in supply chain and purchasing in the petrochemical and aluminum industries.
Smorg's take:
Supply chain/procurement doesn't make him a "hydrogen expert."
Hindenburg says:
Nikola’s Director of Hydrogen Production/Infrastructure Is Trevor Milton’s Little Brother, Who Worked Paving Driveways in Hawaii Prior To Joining at Nikola
Nikola responds:
Travis Milton previously owned and operated his own construction company preparing him for hydrogen station infrastructure and buildouts.
Smorg's take:
Nikola doesn't address the difference in scale of owning a small residential construction company, so small that he himself does some of the actual hands-on work, versus running a large nationwide hydrogen station infrastructure build-out of tens of millions of dollars.
K) Swift Transportation, dHybrid Systems
Hindenburg claims:
After dropping out of college, Trevor Milton started an alarm sales company in Utah called St. George Security and Alarm. He eventually exited the business for $300,000. Our interview with its buyer indicated that Trevor overpromised, resulting in a total loss for the initial acquirer. We also interviewed Trevor’s “50/50” business partner who indicated he was led to believe the exit was much smaller, saying he ultimately received only $100,000 for his “50%”.
Following the alarm business exit, Trevor launched an online classified ads website that sold used cars, called uPillar.com, which eventually failed. (For more on both of these early businesses, see the Appendix at the end of this report.)
Following those two early pursuits, Trevor’s initial foray into alternative energy vehicles was a company called dHybrid, Inc. Trevor joined forces with an engineer named Mike Shrout who had developed compressed natural gas (CNG) conversion technology for diesel engines. Shrout was to bring the technical expertise to the venture while Trevor would bring his business experience.
It Got Off to a Good Start: dHybrid Entered into Agreement with Major Trucking Company Swift to Convert Up to 800 Trucks, a Contract Valued at $16 Million
Shortly after launching dHybrid, Trevor contacted Jerry Moyes, CEO of Swift Transportation to market dHybrid’s conversion technology, according to a source familiar with the company. The team demonstrated the technology on a converted pickup truck to Moyes at Swift’s Phoenix facility.
Moyes was apparently impressed with the demo and Swift eventually signed a development agreement, paying $2 million for a 9% stake in dHybrid, as well as extending a $322,000 loan to the company. The agreement, which we located through litigation records, called for the conversion of an initial 10 trucks for testing with a commitment to convert 800 trucks thereafter.
Swift Later Sued, Alleging the Company Delivered Only 5 Trucks That Didn’t Work and That dHybrid’s Officers Misappropriated Capital for Personal Use
Nikola's defense:
Short Seller Misrepresents Value of 2010 Contract between Swift Transportation and dHybrid Systems LLC: This agreement was from 2010, and has no connection with or association to Nikola. In its report, Hindenburg criticizes Mr. Milton’s statements about the approximately $250 million value of the contract between Swift Transportation and dHybrid (not Nikola), and cites 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. The contract can be found here (see paragraph 6(b)).
Smorg's take:
Nikola doesn't address its Chairman's previous startup experience with the alarm company nor the online uPillar company. Usually a company touts its Chairman's experience as that gives confidence to investors in his latest venture. Same goes for dHybrid, which Nikola actively distances itself from. It's a huge Red Flag when a company distances itself from its Chairman's prior company. The response that the Swift was granted an option does not refute Hindenburg's claims that Swift sued Milton's former company dHybrid.
Nikola also doesn't address Milton's forming of a new company dHybrid Systems, separate from dHybrid, with the successful intent of falsely claiming the new company had been in existence much longer, but on a buy-out not having to pay others actually involved with the original company.
L) Hindenburg claims not addressed.
Nikola hand waves:
There are dozens more inaccurate allegations made by the short seller, which are not relevant to Nikola.
Smorg's take: I'm not going to list what appear to be close to a
hundred allegations made by Hindenburg that are relevant to Nikola and its Chairman, Trevor Milton. Everything Milton has done with past companies is pertinent to what he has done and may do at Nikola. Trevor Milton appears to have a pattern of engaging in shady business practices, which Nikola attempts to hand-waive away as "not relevant." Again, those are huge red flags.
Even worse, Nikola doesn't respond to Hindenburg's many accusations about Milton's statement while CEO or Chairman of Nikola. From claiming 2016 pushers were fully functioning, to what happened with the lawsuit against Bloomberg to what electricity deals Nikola has actually signed to what happened to all the CNG hype to......
Summary:
I am SHOCKED that NKLA goes up after this response. It's even worse than not responding publicly at all because it does not refute a single allegation! Its strongest defenses are the ones that rely on wiggle words or imply vs infer in statements made. In essence, the company has ADMITTED to INTENTIONALLY MISLEADING potential investors and people/companies making reservations and orders.
