Life on Wall Street can be miserable, brutal and short, especially when you’re at the attractions of short sellers.
Let’s take Nikola Corporation (NKLA), the automotive production company that promises investors that the transportation industry can and assist in saving the world from climate change. Nikola’s debut on the Nasdaq market in June through an opposing merger valued the company at approximately $12 billion, and this month announced a primary production partnership with General Motors.
But the popular names of the new generation have a way of attracting problems, and not the correct ones. Last week, short trader Hindenburg Research weighed in with a new “forensic study report” imposing serious fraud fees against Nikola, claiming that his promises were a complex fraud. “
The consequences of Hindenburg’s report forced Nikola’s founder Trevor Milton to resign as executive chairman and board member on September 20. Since then, the Twitter account has been made private. critical doors. “
Hindenburg Research makes serious accusations about Nikola, but serious accusations require serious evidence. Let’s take a closer look at whether Nikola may be the next Thearanos, or if, on the contrary, the company’s executives have just made exaggerated statements about the complicated road to viability.
Nikola Corp. , formerly known as Nikola Motor Company, has opted long-term for the construction of zero-emission cars powered by lithium batteries and hydrogen fuel cells. The company has attracted the brilliant media policy of its plans for car manufacturing, building a network of hydrogen service stations, and reducing the carbon footprint of car transportation in the United States.
Does this project remind you of other technology-based high-flying automakers?That’s right, Tesla, Inc. (TSLA), which encouraged Nikola’s style and trade name Both corporations pay homage to the eccentric inventor of the 20th century, Nikola Tesla.
Investors haven’t been able to do without the story. Nikola’s market capitalization more than doubled to $30 billion a week after its Nasdaq debut in June, thanks to an opposing merger with special target acquisition company VectorIQ.
In early September, the company reached an agreement with General Motors (GM) to produce vehicles, giving GM an 11% stake in Nikola, valued at around $2 billion. The association’s announcement boosted NKLA’s actions by an additional 40%.
The bad news came this month, in the form of an explosive report from Hindenburg Research, which describes itself as a specialist in “forensic monetary investigation. “On 10 September, Hindenburg published a scathing report stating that Nikola is “a complex fraud over dozens of lies. “
The report also took photos of Nikola’s founder Milton, claiming that he had made several false statements about a “patented technology” that “does exist. “
On December 1, 2016, Nikola unveiled his prototype electric semi-trailer, the Nikola One. In a video of the event, CEO Milton can be heard talking about Nikola One, stating that “it’s working and running completely, which is actually amazing. “In January 2018, the company released a short promotional video of the Nikola One truck driving down a desert road.
Hindenburg claims to have researched the online page of the video at the time and shared text messages from a former Nikola worker who, she said, turned out to have the video mounted. According to TEXT messages and on-site research, the Nikola truck in the video was going downhill instead of running on its own.
These effects overshadowed what Hindenburg described as “a growing skepticism about the functionality” of Nikola’s trucks.
“We have never noticed this point of deception in a public company, especially of this size,” says the Hindenburg report. He also cites mobile hydrogen fuel generation company Powermobile AB, a company that had partnered in the past with Nikola, who said Nikola’s claims regarding fuel mobiles and hydrogen fuel mobiles are “hot air. “
NKLA shares fell more than 30% in the days following the publication of the report, while the company’s shares fell 30% after Milton announced his resignation.
Nikola issued a past week calling Hindenburg’s report “false and defamatory. “The company admitted that the video truck, which had been produced through a third party, was actually driving on a hill, adding that the company had not claimed that the truck was, at the time, “by its own propulsion. “
The company also says it made a lot of progress over the next two years. Today, according to Nikola, he has many operational prototypes. A July 8, 2020 YouTube video posted through the company shows a Nikola Two Truck driving what it looks like. be a parking lot.
“As you know, a lot of other people gave us a big headache and told us the fuel truck was fake, and you know what?I thought, “Go ahead, ” says Milton in video. no there will be doubts about Nikola’s legitimacy after this video. “
Jeff Ubben, a member of Nikola’s board of directors and the company’s first investor, has fiercely defended the company from Hindenburg’s accusations. Ubben says Nikola and Milton are “misunderstood” and added a summary explanation of the company.
“We’re looking to sell trucks, we’re looking to sell hydrogen,” Ubben told the Financial Times.
Either way, the Justice Department is now reviewing Nikola in reaction to Hindenburg’s claims, according to a separate financial times report. The Securities and Exchange Commission (SEC) is also in the early stages of investigating Hindenburg’s claims and Nikola’s rebuttal that the company is manipulating its shares in the market.
Although Hindenburg claims to have fraudulent and misleading real Nikola receipts, Hindenburg’s main goal is to take advantage of Nikola’s inventory losses by making a short sale.
Short promotion is when an investor borrows inventories, sells inventories, and saves profits. Short traders then wait for inventory to drop in value, re-purchase inventories at a lower value, and return them to the lender.
Short promotion is incredibly difficult and has the possibility of many deceptive practices. Possibly it would be so misleading that the SEC brought the SHO Regulation in 2005 to short promotion and save you unethical short promotion practices.
Since the promotion bet cuts on profits from falling stock prices, does this mean that Hindenburg’s study report deserves to be reliable?Is the company “directing and distorting” Nikola to gain advantages or is it really offering a public service by supposedly exposing the company’s bad faith?
Billionaire investor Bill Ackman’s long-standing short bet opposed to the publicly traded weight loss company, Herbalife Nutrition (HLF), provides an example of a warning of the traps of large short positions.
In 2012, billionaire Bill Ackman bet $1 billion that Herbalife’s inventory would fall to 0 because of the strain of revelations about his predating sales practices. Herbalife is a multi-level marketing company that uses highly questionable techniques to sell nutritional supplements and weight loss products.
Ackman spent tons of cash investigating the company and claimed it was an illicit pyramid scheme than a multi-layered marketing operation. The company’s shares plummeted 20% after Ackman bet against it.
Ackman did not win much in his bet opposing Herbalife. In 2018, 4 years after his initial bet opposed to Herbalife, Ackman resigned his shorts and got rid of his stock. In 2019, the SEC billed Herbalife $20 million for misleading investors.
Just before Ackman’s fees against Herbalife, the company was priced at $ 23. 40 a share. Herbalife shares fell to $ 13. 37 just two weeks later. And today, 8 years after Ackman introduced his short selling crusade, Herbalife is trading at $ 48. 34 a share.
Until a formal and full investigation is completed through the SEC, it is difficult to know if Nikola is the next Theranos or whether Hindenburg’s accusations are more in the interest of making an investment or his own wallet public.
What is clear, however, is that investors deserve to exercise caution when making a short-term investment and comparing companies largely before injecting cash into them.
Short selling, such as what Hindenburg hopes to do with Nikola, can deplete investors’ budget almost as temporarily as they were created. Investing in new companies that may not yet have genuine products can also be risky. Proceed with caution.
I am a non-public finance reporter for Forbes Advisor. I have previously covered non-public finance in other national internet publications, adding Bankrate and The Penny Hoarder.
I’m a non-public finance reporter for Forbes Advisor. Previously, I’ve covered non-public finances in other national Internet publications, adding Bankrate and The Penny Hoarder. I was hired as a non-public finance expert in media like CNBC, Yahoo !Finance, CBS News Radio and more. When I’m not looking for the most productive tactics to manage your money, I do it all over the world. Follow me on Twitter at @keywordkelly.