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Nikola admits prototype was rolling downhill in promotional video (arstechnica.com)
344 points by samizdis 5 days ago | hide | past | favorite | 241 comments

How does a huge corporation like GM end up partnering with such an obvious scam, especially post-Theranos? Where is the due-diligence? I saw NKLA stock skyrocketing, and spent 5 minutes researching the company to find out why, and all I found were massive red flags... how did GM miss them?

It was such a good deal for GM that it didn't matter. They got 11% of Nikola, which they can start selling off after a year. And that was just to allow Nikola access to their IP, which GM wanted to develop and test anyways. I imagine they got such great terms because Nikola has absolutely nothing working in-house.

> It was such a good deal for GM that it didn't matter.

Exactly. There is literally no downside for GM.

If it's a total scam and falls apart tomorrow, well - they didn't pay any money for the deal (aside from lawyer time). Oh well.

If they can sell off their stock grant, that's free money.

If they can actually make parts/vehicles for Nikola, that's even more money.

Exactly. There is literally no downside for GM.

We're going to find out over the next few weeks that isn't the case. There is tremendous reputational risk here. This episode could throw into question EV capabilities for GM for years to come.

Don't be surprised to see heads roll all the way up in the C-suite at GM over this.

Reputational risk among who? The upper middle class people who poo-poo anyone who doesn't drive a Toyota or Tesla product?

Nobody else is paying serious attention to the R&D ventures of the big automakers or at least if they are they aren't using it to influence purchasing decisions.

Seriously, this is auto/tech nerd news which is read by a sliver of car buyers. Folks will stroll into the dealership they bought their last GM 15 years ago and say ‘gee maybe ill give electric a shot for these lease terms considering my use lately.’

Until they get sued. Many of the people who made money of Madoff had to return the money they gained.

You're saying an investor (GM) can be held liable for what the limited liability corporation (Nikolai) did?

Not necessarily held liable, but they'd probably have to return the money if it was earned from illegal activity.

In some cases, yes.

>> You're saying an investor (GM) can be held liable for what the limited liability corporation (Nikolai) did?

> In some cases, yes.

Now I'm curious. Can you give an example?

This[1] is a pretty good overview to piercing the corporate veil. I suppose it's technically possible for a company to be liable for what a company they invest in does, but there would have to be some pretty weird circumstances (for example, if the two companies had substantially co-mingled finances and leadership).

I don't see any of it applying to the GM/Nikola deal.


1. https://www.nolo.com/legal-encyclopedia/personal-liability-p...

Every engineer that works on working with Nikola is not working on trying to catch up in EV.

When it was just Tesla it was fine for them to be bad at making EV. Now that VW and others are starting to get serious, they really need to make something happen.

They've rented out their reputation to further this scam. That reputation is now damaged.

Perhaps, but it's hard to imagine a typical GM customer giving a damn about this investment.

11% of 0 is 0. This simply solidifies the idea that GM is led by out of touch legacy management. "We were supposed to check they only rolled the truck down a hill?"

Say what you will about Musk and Tesla (I know, I know), but their Class 8 Semi did a nationwide tour (under its own power) to potential customers [1] and also occasionally pitches in to perform vehicle deliveries [2], no downhill coasting required.

[1] https://electrek.co/2018/08/25/tesla-semi-drove-across-count...

[2] https://electrek.co/2020/06/26/tesla-semi-spotted-used-deliv...

In addition to the 11%, GM is also slated to earn up to 700 million dollars in cash.

More specifically was slated to earn 700 million, if the Nikola ponzi had been able to slip under the radar and continue. I'm absolutely sure NKLA does not have 0.7 billion lying around in cash, those are new investment that they need to raise. Fake it till you make it, they say.

In the current situation, all investors will require substantial proof of working technology. No working tech, no new investment, the company will probably fold before paying back a cent to GM.

As of their last earnings report Nikola had almost exactly $700M in cash / cash equivalents. Maybe GM just wants that :)

That's interesting. Without any product, what exactly are those sources of cash earnings?

Reverse merger with a SPAC investment vehicle. They're not earnings, they're investor funds.


They need that for the next 3 years where they will not make money.

They probably can sell calls against those shares, basically getting risk-free money regardless of NKLA price in future.

Doubt it because if it got exercised they would be selling their stock. Otherwise, they just be able to sell daily calls at 1 cent below the price for no premium and watch it exercise and thus liquidating the stock they are supposed to hold onto.

If GM didn't know they rolled it down a hill then it sounds like people are going to jail.

Not really. They can probably sell it at a loss and recover it all back in tax breaks.

GM only stood to benefit, with the exception of tarnishing their brand and trust even more.

Walgreens, Safeway, and cleveland clinic partnered with Theranos. Cleveland Clinic is supposed to be one of the best hospitals in the world.

The Cleveland Clinic is only the "best" because of marketing. Think about it. Are the best and brightest REALLY clamoring live indefinitely Cleveland? Yeah right.

The best hospitals are likely in California. Doctors want to work in California so bad that they actually take LESS money. It's called the sunshine tax.

It was a PR move. All major business websites had a story about the news. They would have preferred that this didn't come out and NKLA was able to create a real company, but it isn't like they shut down all their factories in anticipation of NKLA making all the GM cars.

Wouldn't be their first time. Previously it was Envia Systems promising a 400Wh/kg battery years before this was on anyone's roadmap.

Of course it turned out to be a scam.

Did GM pay Nikola cash for its investment? Or is it offsets against e.g. purchases of GM batteries?

The latter. Hence it's basically zero risk for GM. If Nikola is real, then the deal is good. If Nikola is a fraud, then it's not like GM wasn't going to do R&D on battery tech anyway.

The same way countless business, government, and philanthropic leaders were all duped by Theranos.

Group think and greed are powerful drugs for those unable to perform their own critical thinking/research.

This sort of thing is (from my limited experience) incredibly common in the start up space.

Nikola, essentially, paid someone at GM in exchange for the deal.

If you read to the end of the article it addresses the GM deal. GM will use its own battery tech. Nikola is basically just sales/marketing. The deal still makes absolutely no sense, but GM isn't dependent on Nikola having working tech or not.

It might actually make sense for GM. GM is building the vehicles using their own tech/plants (presumably not at a loss) and for doing so, is getting Nikola stock.

If Nikola is an unexpected success, then they have a significant stake in it, and if they fail, then hopefully they don't have too many vehicles that Nikola hasn't paid for.

It's baffling. Like you said, GM will use its own technology. So they bought 11% of Nikola for…edgy CEO shitposting on Twitter?

GM can definitely build a good electric vehicle. They cannot seem to market a good electric vehicle—see Chevrolet Bolt sales, and then ask a random person if they know what a Bolt is. So the Nikola investment is the equivalent of buying a hip design studio?

They didn't buy any stock. GM gets 11% in return for supplying and R&D for the Nikola "car". But they didn't spend any cash, and in fact get cash because they can reimburse 700M.

In the worst case, they were paid to do their own R&D.

Nikola basically bribed GM with a insane deal so they can say they have a GM partnership.

Nikola did have a pleasing exterior design for the pickup and a solid email list of potential buyers. Not worth a fortune, but something.

It wouldn't be the first time GM used a "sock puppet" (loosely defined) to escape its own reputation. [0]

[0]: https://en.m.wikipedia.org/wiki/Saturn_Corporation

This is the CEO that said their infotainment system is a HTML supercomputer. He's now a billionaire and has cashed out 70 million with nothing more than a fake prototype, lies and purchases from suppliers in which they give their equity and call it a strategic partnership.

I thought you were exaggerating but I found the truckinginfo article (https://www.truckinginfo.com/330475/whats-behind-the-grille-...).

I am not involved in this world at all... but is this common? Can you really expose your own ignorance in this way and also manage to keep investors?

This is amazing.

``` But the Nikola truck is more than just a fuel cell vehicle; it’s a rolling super computer. One of the key elements of Nikola’s advanced system is the Bosch Vehicle Control Unit, which provides higher computing power for advanced functions while reducing the number of standalone units.

"The entire infotainment system is a HTML 5 super computer," Milton said. "That's the standard language for computer programmers around the world, so using it let's us build our own chips. And HTML 5 is very secure. Every component is linked on the data network, all speaking the same language. It's not a bunch of separate systems that somehow still manage to communicate." ```

>And HTML 5 is very secure. Every component is linked on the data network, all speaking the same language.

Javascript and CSS to replace the CAN-BUS? That'd be funny..

To spin the tyres you just need to add the CSS style: { animation:spin 4s linear infinite; }

And reduce the duration to make the truck go faster..

I'm completely unable to decide if I should be unreasonably amused or morbidly horrified.

> One of the key elements of Nikola’s advanced system is the Bosch Vehicle Control Unit

So… a Bosch ECU? That's hardly new. Bosch is one of the largest players in the market -- Ford, GM, BMW, and VW (among others) have been using their ECUs for ages.


Please don't post like this to HN. Maybe you don't owe billionaires better, but you definitely owe this community better if you're participating in it.


From the linked article, here is the full quote:

> "The entire infotainment system is a HTML 5 super computer," Milton said. "That's the standard language for computer programmers around the world, so using it let's us build our own chips. And HTML 5 is very secure. Every component is linked on the data network, all speaking the same language. It's not a bunch of separate systems that somehow still manage to communicate."

Sounds like the sort of guy to create a GUI Interface in Visual Basic to track an IP Address.

r/masterhacker material

What a relief! No more worries about the ARM buyout. Just use HTML 5 and you can build your own chips.

Tasty word salad.

Welp, their trucks are going to get hacked easily.

Investors usually don't know better about the tech, but this is exactly how Elizabeth Holmes was exposed. In an interview with Forbes she described Theranos's process as (I'm paraphrasing) "a sequence of chemistries". That sounded fishy to John Carreyrou at the Wall Street Journal, so he started his long term investigation into Theranos, and eventually broke the story.

So the short answer is that no, you can't keep investors in the long run, but it takes time for journalists, watchdog groups, and federal agencies to do thorough investigations.


Listen to him talk about Nikola in interviews. In an interview he said "before WeWork it was really easy to get money but now investors ask more questions." His interviews are filled with answers from this perspective and it's quite bizarre how no one noticed this.

I noticed that he also makes false statements in the video. Nikola has zero active routes,that's a lie.

> He's now a billionaire and has cashed out 70 million

Elizabeth Holmes was worth $5 billion at one point.

They'll take every dime this guy has, if it turns out to be a fraud. The Feds will particularly aggressively investigate such a prominent case. Such public cases make the Feds look bad (from their point of view), especially if they don't get the people responsible, so they tend to pursue them rigorously. They'll inevitably find something he did wrong, and he'll end up in the same spot that Holmes is in, spending all his time trying to weasel out of a prison sentence.

> HTML supercomputer

not sure about the rest of you, but i am investing in html supercomputer. could be bigger than quantum computing. spread the word.

Your recollection of the statement is so on point. I often can only recall things this clearly when they are that dumb.

Living the dream.

From the article:

> Nikola's fortunes are now tied to the success of the Nikola Two, Badger, and other products. If those products are successful, it probably won't matter that the Nikola One was never drivable.

I'm trying to figure out what is the difference between Nikola One and Two. By comparing https://nikolamotor.com/one and https://nikolamotor.com/two there doesn't seem to be any difference at all, apart from the pictures and videos. The specs are the same, technology is the same, performance is the same, all of the promotional text is the same, etc.

I thought you were joking, but it appears you're right ! I've also clicked on the 'tre' model, and while there is no specs, and 'performance' numbers are better , all highlights and inside pictures are the same. Amazing !

I believe Tre is meant for Europe and Two is meant for the US. I suppose the American one is larger

Those pages are practically copy and pasted. There isn't a difference because the trucks don't exist.

Two didn't roll down a hill in a promotional video? I'm with you, I'm trying to figure that out as well.

One is basically a large pine derby racer. Two hopefully will be an electric vehicle, but I won't hold my breath

Once again we see that the short side is absolutely necessary to keep companies in check. A company that whines about short sellers is broadcasting its intention to act dishonestly. If you are long a company that puts out press releases about a short conspiracy, run for the exits.

> A company that whines about short sellers is broadcasting its intention to act dishonestly.

Lets not pretend short sellers arent willing to exaggerate their case against in order to make a quick buck. They are talking their book afterall. I would say whining is a sign of weakness more than dishonesty.

> Lets not pretend short sellers arent willing to exaggerate their case against in order to make a quick buck

Sure. Both management and short sellers are. But structurally, the table is tilted in favor of management.

It's all upside for them cause they're betting on the downside.

Damn straight. A short seller with compromising info has all the incentives to broadcast it, then sit back and look how he makes money. He injects valuable information into the market and puts his neck on the line - since the downside of a short position is unlimited. No such incentives exist for long holders.

The problem are never short-sellers per se, bur rather the fabrications some diseminate to induce panics. Those guys that try to manipulate the market with false information should be vilified, not short sellers in general.

> fabrications some diseminate to induce panics

That rarely happens, in reality. It's just the boogey-man CEOs tell their investors at night so they can blame someone for bad stock performance.

There are strict rules against market manipulation and short sellers are under very large amounts of scrutiny. It's not uncommon for legitimate short sellers to get pressured/investigated by SEC/equivalents. (see Wirecard and BaFin)

Any sensible short just sends their bad news stories to Business Insider/Seeking Alpha/Zerohedge. That way there's no SEC scrutiny because it's not the short that published the story.

Shorting doesn't have to involve unlimited risk, put contracts are defined limited risk and serve the same purpose.

I don't agree that they serve the same purpose; shorting is not the same as buying a put and the two only behave similarly in a very narrow and limited sense that isn't particularly practical. Yes in some circumstances money is gained if the price of a stock decreases with both a short and a put, but the risk profile, timing and cost are quite distinct.

Furthermore it's absolutely possible and in many circumstances likely that the price of a put decreases even if the underlying stock's price decreases, for example if the volatility also decreases.

I don't think many informed individuals treat shorting stock the same way they treat buying puts nor do they attempt to accomplish the same purpose.

I didn't say they were the same, but they serve the same purpose. Buying a put is a long volatility and short underlying position. You can mitigate the effect of volatility with spreads. But the directionality of the position is what you're buying with a put, you're buying delta within a certain time frame. And as I said, the risk profile of put or well constructed spread is better than plain shorting which has unlimited downside.

That strategy would not have worked well if you were long Tesla during the past several years, and Elon was pretty vocal about the shorts.

I feel like Nikola is an example of why it might be bad for retail investors to have access to early stage companies (pre-IPO or not). A traditional venture capital investment has a better ability to do due diligence than the general public does.

I'm not familiar with IPO listings through SPACs, but do these type of listings go through as much DD as a traditional IPO listing? It seems that every step along the way, NKLA had avoided close inspection of it's actual IP and assets.

On the otherhand, if Nikola was successful and retail investors couldn't get in early, it's an unfair advantage to the rich who are still allowed to invest.

Nikola is actually a poor example of your point. Their stock price is still up since they IPOed. A retail investor could sell their shares now and be fine.

It would seem we would gain a lot from greater transparency in who owns shares.

For example, Robintrack's data was very illuminating, almost every stock that made it to the week popular list was full of retail bagholders: https://imgur.com/a/LbvUOdi

Bet you thought I meant insiders. I'd run from stuff idiots buy!

> It would seem we would gain a lot from greater transparency in who owns shares.

Major KODK shareholders: https://finance.yahoo.com/quote/KODK/holders?p=KODK

Retail holds a small percent of pretty much anything, institutions dwarf retail.

Almost all of those institutions are holding shares on behalf of normal "retail" people, not professional investors. The statistic you are seeing is both in support of the claim of how much retail is a bagholder and in support of the claim that the word "institutional" is misunderstood.

They don't, SPACs up until recently had a very poor reputation, and it seems like we will soon have a new generation of investors learn the hard way why they had that reputation.

Every ten years a new generation of investors have to learn the same lessons

Seriously. I read "The intelligent investor" a few years back and it was striking how the original author was using examples from 1921 that read like they happened last week. For all the innovation in the rest of finance, investor psychology has really not changed that much.

Someone who honestly believes they can jump into the market and make it rich has to genuinely believe they are smarter than everyone else that came before them. It self selects for "This time it's different"

There's a reason why certain factors still have small biases in the market.

Had NKLA not been publicly traded, there would have been little financial incentive for an institution with skin in the game to systematically research and report on potential fraud.

The only way they are getting exposed is because they are public. There are countless Nikolas with vaporware getting hundreds of millions in VC funding, don't deceive yourself. Just look at how far WeWork was able to go until they had to go public, that public scrutiny is what eventually did them in.

On the other hand, our main fraud discovery mechanism is short selling. No public market means no shorts...

How did they get to the public markets in the first place? You'd think they got private funding?

Reverse IPO.

Meaning they merged with an existing "blank-check" public company.

Yeah but what entity did the reverse IPO? A private company? How was it funded?

VectoIQ (VTIQ), a public company, which did a somewhat normal IPO to raise funds. This is hardly some deeply guarded secret.

Further up someone says a private investor should have done due diligence. My point is before it went public, Nikola was private, and someone should have done the DD.

Due diligence can and should be done before investing in any company at any time, public or private. While any discovered fraud on the part of Nikola will be punished by the SEC and law enforcement, investors need to take personal responsibility for where they put their money (i.e. performing their own DD).

Discovering that Milton hired his brother whose previous experience was paving driveways, or that the chief engineer has no relevant prior experience isn't even deep DD. We shouldn't be playing the violins for retail investors on this one.

Conversely, we could treat retail investors like the adults they are.

Generally speaking, knee-jerk reaction to create rules and regulations for every problem in society will only lead to further dysfunction, less growth, and permanently locking the little guy out.

From the video:

"Behold, the 1,000 HP, zero-emission Nikola One semi-truck in motion. Get ready for the pre-production units to hit fleets next year in 2019 for testing. The Nikola #hydrogenelectric trucks will take on any #semitruck and outperform them in every category; weight, acceleration, stopping, safety and features - all with a 500-1,000 mile range!"

People were arguing about how Tesla's semi was dead on arrival because of these people.

I question the 1000hp claim but concede that gravity is indeed zero-emission.

But their range was actually achievable, assuming they found a 500 mile downhill stretch of road

It only says “in motion”. Technically, true?

This is the company with $36k in total revenues from installing a solar system on the founders home. They list a bunch of products on their webpage. Do they sell any of them or is it vaporware?

The renderings are real, not vaporware. You can 2D print them

This is a horrible press release. Horrible. The allegations Hinderburg made are substantial, but a rebuttal as poor as this one is even worse than just staying silent.

It would be somewhat understandable if they'd be trying to weasel out of one or two issues.

But when all but a few of your rebuttals are "oh but in a strict technical sense, we didn't make the claims that Hingerburg is challenging", like "we never said the truck was under its own propulsion, the video was just called "in motion", or "the contract that we claimed was worth 250 million had an option that made it potentially worth 250 million", then that just underlines how much bullshit they have been spewing.

Agreed, when I read their response I thought that what they didn't say spoke volumes. Hindenburg's article covered every company in Trevor Milton's professional career from dropping out at Utah Valley State to Nikola. Hindenburg gave evidence that Milton perpetuated fraud at every single company he was involved in and they only challenged the 250 million option at DHybrid.

I think the issue the legal team faces is that many of the things Trevor says are clearly false and misleading.For example, he claimed multiple times that Nikola is generating 3.5 megawatts of energy from solar panels on their roof. There is simply nothing there, it is a bold lie so naturally it's not referenced in their response at all.

The entire company is built around mysterious battery tech that's twice as efficient as Tesla's batteries and hydrogen production at 18.75% of current cost. That is the central fraud in the company just as the unrealistic notion of droplets of blood for reliable testing was at Theranos.

Eventually, if Nikola persists in trying use hydrogen they will face the technological and economic reality they've been hiding from investors and the company will fail.

Milton is obviously an idiot, crazy and delusional, if he didnt realize someone could prove him wrong via google earth.

What terrifies me the most is that supposedly this company is planning to store a shit ton of hydrogen in the middle of the Phoenix metro area.

Nothing that I've heard about this company makes me think it is at all equipped to properly handle that responsibility, and I'm adjusting my behavior to stay clear of that part of town.

The chief of the hydrogen division at Nikola is Trevor's brother. His industry previous experience consists of pouring concrete driveways. Phoenix should be fine.

Don't worry they wont be building it themselves. Or likely build it at all.

Not to defend Nikola, but people are quick to forget that iPhone's first presentation was a lot of smoke and mirrors?

"Hours of trial and error had helped the iPhone team develop what engineers called “the golden path,” a specific set of tasks, performed in a specific way and order, that made the phone look as if it worked."


That's common for tech demos, especially software demos. Hardcoded values, scripted paths, etc.

Nikola's presentation was something else:

> "We will have a chain on the seats to prevent people from coming in just for the safety. I don't want someone to end up doing something and driving this truck off the stage," Milton said. "This thing fully functions and works, which is really incredible."

He specifically boasted that it was a fully working machine. That's a lie.

The difference is that's a demo and companies don't say "this prototype I have right here is fully functional", that's just a bold faced lie.

Nikola unlike Apple has no track record of shipping anything.

But I do see your point about what they're doing (overhyping the future roadmap) being quite common. IMO the people comparing this to Theranos are wrong. Theranos sold a product to consumers that didn't have the capabilities it was advertised to have, whereas this is a transparently stupid company without a single product or customer except for the founder's self-dealing at his house. A lot of retail investors are gonna be hurt by this, but it's not clear to me that it's fraud

They didn't take 4 years more to get something working afterwards. Nothing that was promised or shown didn't work, even if hacky

So I guess they subscribe to the 'fake it till you make it' philosophy of start ups?

Considering their founder bought a ranch which cost tens of millions of dollars, I think they're following the fake it till you can cash out WeWork model.

They aren't the only ones.

I really think that false statements made by commercial entities should be prosecuted as fraud. It's one thing to engage in vague sales talk like 'the new SuperTech Blinkenlights will turbocharge your actuarial skydiving research!!', but when you're making claims of having actually existing technology (which you may not be ready or willing to patent, but do want to raise money with), the public has an interest in protecting itself from fraud.

Perhaps there should be some requirement to pay for independent professional witnesses, sort of like observers who validate Guinness world records as having met some (negotiable) standard of existing in the real world while being bound not to comment on the specifics of how it was achieved.

Ah, but they have an 'airtight' defense!

> "Nikola never stated its truck was driving under its own propulsion in the video," Nikola wrote. "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.'

You laugh, but if we make this a matter of regulatory oversight, this sort of word parsing is exactly what every case will come down to.

Or you just look through the communications surrounding this video during discovery to see if there was a pattern establishing intent to mislead investors.

Bingo. Subpoena their emails and undoubtedly their whole defense falls apart.

The article suggested that it was more than just a video at issue. Milton said. "This thing fully functions and works, which is really incredible."

Further, internal emails not just public statements are often used to decide if something was intended to deceive or not.

There are 'reasonable person' laws all over. Maybe there should be one to apply here. Like 'unlimited* data' plans technically have fine print redefining the word unlimited, but a reasonable person will see the ad across the street and be misled.

Also even if it wasn't fine print, it's still comically illegal. Imagine someone saying "Our cereal cures cancer! Where cancer is defined as 'hunger'."

Fraud is about intent. They intended to defraud, that's the salient fact.

They also stated that investors at the time were aware of the limitations. If that is true, then who would have been defrauded?

I’m not trying to defend them, but at that stage of the (private) company, if they were honest with investors then is there an issue? Where is that line? If they weren’t honest with them, then that’s a whole other story.

(And I’m not sure you can assume they were in fact honest with investors.)

NKLA I thought was around for a couple years. Maybe major shareholders were informed?

Were they public or private at the time?

(Because if they were public, that would be a problem...)

let's see - "Nikola Motor Company stock ticker is NKLA. It went public on the NASDAQ on June 4, 2020." (random google search)

but the article indicates "When Nikola Motor Company founder Trevor Milton unveiled a prototype of the Nikola One truck in December 2016, he portrayed it as fully functional."

So there you go!

In other words "I'm not touching you..." but the adult version.

tbh thats probably legalistically enough for them to avoid getting sued

But the very idea that "yeah, you're right on all the facts, its just that we didn't really 'lie'" isn't a great defense of the business

The law normally considers what a reasonable person would think, doesn't it? Who would think it was anything other than moving under its own power?

It depends on the circumstance. In the case of an investor, there's much more assumed due diligence than just "what a reasonable person would think".

If the guy shows you a video, are you gonna actually ask him whether it was what it looks like?

I guess you ought to kick the tyres on the real thing though.

Investors are supposed to conduct their own due diligence which could include talking to the engineers or setting up a demo under mutually agreed conditions at which point the difference between "in motion" and "driving" would be uncovered.

It's definitely not a good look though.

Context matters too. No reasonable person would expect a company to post a promotional video of their vehicle "in motion" just to show off that it has wheels that can roll.

The CEO directly said it was a working truck at the time. Today’s press release is skirting that fact.

I agree that it should be fraud, but I'm not sure how the SEC defines fraud.

To me, the whole NKLA situation feels like a giant Kickstarter scam.

Everything everywhere is securities fraud.

> contributing to global warming is securities fraud, and sexual harassment by executives is securities fraud, and customer data breaches are securities fraud, and mistreating killer whales is securities fraud, and whatever else you’ve got. Securities fraud is a universal regulatory regime; anything bad that is done by or happens to a public company is also securities fraud, and it is often easier to punish the bad thing as securities fraud than it is to regulate it directly.


The problem is, who was defrauded? The investors, I guess, but if they sue then they can only collect money from the company that they own anyway. It's not obvious that's a money-gaining proposition.

The investors could bring a derivative suit against the officers of the corporation. They wouldnt be collecting from the corporation, but from the officers of the corporation (https://en.wikipedia.org/wiki/Derivative_suit).

Presumably it would not be feasible to collect large sums from the officers, but they frequently do have D&O insurance policies that could kick in (https://en.wikipedia.org/wiki/Directors_and_officers_liabili...)

Not a money-gaining proposition, but that's why some CEOs should go to jail. We need to create an environment where fraud like this isn't profitable or sustainable.

Fyi, fraud is notoriously hard to convict on and even when large frauds are successfully prosecuted, the penalties are quite small. The SEC also can't be seen to be "hammering entrepreneurs" or let its conviction rates drop. So why get involved?

Apparently institutional investors are just Kickstarter backers with more money.

The major difference is that Kickstarter “investors” have no upside exposure.

I agree. It seems like the Theranos of the EV world.

This is currently the golden age of fraud. Jay Clayton has destroyed any set of teeth that the SEC once had.

This is why people have been so critical of Elon Musk. Elon Musk's flippant behavior engenders worse and worse.

They can, of course, be prosecuted for fraud if someone brings a valid complaint against them. Is there any evidence that any of their investors were tricked into giving them money or were made false promises?

Disclaimer: I am not a lawyer.

Well, we do have laws about

* False Advertisement * Investors' Fraud

Unfortunately they are not applied, or not applied consistently; and this is just one of the many examples that I come across on a weekly basis.

What makes matters worse is that when talking about it with people at work or so, they don't seem to care enough and feel it's not a problem.

It is a problem, it's a slippery slope into lawless chaos.

> Well, we do have laws about False Advertisement

If such laws exist, they aren't worth the paper they're printed on.

I hope you realize that is simplistic. Is the bar for enforcing such laws very high and do many often slip under it? Yes. And yet prosecutions under such laws are happening constantly.

To build real motivation for start-up founders not to commit fraud, they would have to be persecuted even when they succeed. But now, if you push through and eventually prevail, everybody wins and nobody cares; may be some former competitors who tried to play it right, but now they're history and have no leverage. Who's going to go after Facebook for their previous shenanigans? Unlike Nikola, their early investors are quite happy.

And as long as that's the case, people crazy and risky enough to become startup founders will never be persuated not to do it.

Like Tesla's full self driving. It doesn't exist and will not exist for a long time.

One's a bad prediction, the other's a lie. There is a difference.

Tesla's software is currently called "Full Self-Driving Capability", which is both a bad prediction and a lie.

Artificial Intelligence is the single most overused buzzword at the moment. Just an example among many:

"We’re building an AI-powered writing assistant that helps people communicate and connect"


Compared to AI "Full Self-Driving Capability" isn't any more implausible. Yet we don't call those AI companies fraud.

This is how Tesla marketing Model 3's Autopilot. Marketing speak for sure, but lie?

"Autopilot enables your car to steer, accelerate and brake automatically within its lane. Full Self-Driving Capability introduces additional features and improves existing functionality to make your car more capable over time"


> Tesla's software is currently called "Full Self-Driving Capability", which is both a bad prediction and a lie.

Nowhere does Tesla claim that their cars currently have the ability to do "Full Self-Driving".

They sell a package which promises, in the future, to enable "Full Self-Driving" on the associated car.

The average life of a car is 8 years or 150,000 miles. I doubt FSD will be available within 10 years.

> The average life of a car is 8 years or 150,000 miles. I doubt FSD will be available by then.

1. I don't know. I guess that's the risk people take when they buy the FSD package without a guaranteed date.

2. It's not clear to me that your average life numbers apply to Teslas.

It has the capability, it just does not exercise it.

I think this is the rub. It depends on your definition of “capable.” While technically, it’s “capable” in the sense all Teslas have sensors they claim are enough, it’s not “capable” of using those sensors for self driving if there’s no code for it.

It's a lie just as Theranos was. It might be possible one day, it isn't in the near future.

No, Theranos didn't just make promises, they said "we're doing this right now in our labs and with our partner, Walgreen".

> I really think that false statements made by commercial entities should be prosecuted as fraud.

In Germany, we have the "Gesetz gegen den unlauteren Wettbewerb", roughly translated as "law against unfair competition". It's a pretty old piece of law (1896), but unlike other laws in Germany this one is held reasonably up to date.

Stuff like we see here would be flat out prosecutable by any competitor.

If Matt Levine weren't on break from his Bloomberg column, you can bet this would be an entry in his file "Everything is Securities Fraud". It wouldn't even be a controversial one.

This is called due diligence, and it's on the investor to perform their own due diligence. For a product that isn't commercially available to consumers yet, due diligence should be enough.

In the case of something like Theranos, I thoroughly agree. Oversight of a commercially available product, especially one with health implications, is definitely necessary. Although it seems even these systems failed in the Theranos case.

There is actually the legal test of a Reasonable Person.

If they say they're going to sell trucks, and they present a truck doing truck things (moving), most people would assume it's a complete truck as portrayed. An empty shell is just fraud in the court, hopefully.

Agreed, but a reasonable person would also ask: "how well does it drive up hills?", "what are it's miles per charge?", etc. at which point the truth is uncovered.

It's not a good look, but you also shouldn't be investing based on what amounts to a commercial. This should be another stain for the company and another warning sign for investors, but we don't need a law against misleading promo videos because almost all are short on information and high on emotion. It's the investor's job to get the information behind the video.

While it's true that funders should perform due diligence, diligence for fundraising still relies on an underlying need for the entity raising funds to be truthful.

As an example, if you apply for a bank loan and falsify the application, you can still be charged with fraud and go to jail even though the bank potentially could have discovered the falsehood by hiring an investigator before issuing the loan.

That doesn't scale for public companies like Nikola, you can't have thousands of investors visiting the headquarters and asking questions.

The harm caused by this kind of deception is not only to the investors (or to the deceivers, when they are found out). It also increases the general background level of distrust, which harms the honest.

These systems where never triggered because of where Theranos was in the development process.

The oversight is ostensibly someone figuring out it is a scam and filing a complaint with the district attorney so they can prosecute the scammer.

I opened a massive short position on NKLA today after seeing it up almost 10%. Uneducated speculators that have forgotten the lessons of Theranos are fueling its rise, and for them it will end in tears. For me? I will make a fortune.

The market can remain irrational longer than you can remain solvent.

massive short position

I hope you are WELL capitalized to prepare for pain. First, this stock has surely reached HTB status (hard to borrow) and so it is going to be very expensive, prohibitively so depending on timing, to borrow these shares for your adventure for any decent amount of time.

And don't worry, you aren't the only person who will be shorting these shares, which means there's gonna be months of fu*kery going on regarding this company and it's stock. There are already people lining up on the other end of this in anticipation of the fun, and when crazy news hits, or something short term favorable happens, the short squeeze will be on. This is where you are going to need to be well capitalized.

I've decided to play this one in the options market with a defined time horizon. Even though, like the borrowing shares market, there is significant expense associated with this trade because of super high implied volatility, I still think there is upside, with defined risk instead of unlimited risk like straight shorting the shares.

I've decided to purchase 1/15/2021 Calls and Puts on this stock, and let it go to zero in the end.

Good luck.

I'm not sure you've learned the lessons from Tesla

I have been investing in TSLA since 2014, This situation is exactly the opposite.

Both companies are fake it until you make it businesses to the extreme. Tesla is just 10x the size of Nikola.

Tesla was already selling cars when it went public.

Nikola doesn't even have a functional prototype as far as I'm aware, the best they have is a truck that can drive at what looks like 20mph while towing nothing, and I'm giving them the benefit of the doubt that it is actually running on an hydrogen fuel cell.

I almost took a short position on Friday. The risk is that Softbank does a front running scam again and you get caught down 300% before NKLA actually goes under.

How is Masa Son not in jail?

I wouldn't be so sure. Fundamentals don't matter much in this market.

The time for fundamentals will return soon.

If "soon" is "less than a decade" I'd probably agree with you, but I still wouldn't be certain. The housing market took 6 years to go from front cover of the Economist to crash.

A large reason for the market strangeness is the helicopter money from the Fed and the essentially zero interest rate environment. The helicopter money might end soon, but the crazy low interest rates might be here to stay. We might have to redefine what the fundamentals are.

There is only so much zero interest money you can burn through before people taking those loans realize that you have no product and they will be still liable for the principal.

Nikola has no battery edge. Their hydrogen tech is vaporware - after more then 20 years of massive public and private investment in Japan and Germany, Hydrogen failed to achieve a competitive position in the marketplace. Hell, it has been 17 years since Bush Jr announced his plan for a "Hydrogen economy" - nothing materialized.

Hidrogen is dead an buried, not coming back. Nikola has no propulsion in a market where even the company that has the best electric propulsion - Tesla - is struggling to put a compelling semi.

A small note: Helicopter Money has a relatively precise definition, and what the US government (and Federal Reserve) has done in 2020 does not fit that definition. The Fed's activities still fall under the umbrella of Quantitative Easing.


Right, but when you're shorting this stock you're assigning a deadline to this prediction. And a pretty aggressive one - I assume your expiration is before the election, otherwise you're essentially buying election IV.

I assume you are referring to the upcoming elections with "soon" - the problem is, the Fed won't be stopping the money presses so soon, and with all the cheap money in the market it will always drive to find even the most tiny returns. Even if these "returns" are scams.

"The market can remain irrational longer than you can remain solvent."

Warren Buffett and Ben Graham would laugh uproariously at this statement.

What kinds of borrowing costs are you seeing? The numbers I saw earlier would make it extremely sensitive to timing.

Good call! NKLA is down 8% aftermarket

I see a long TSLA / short NKLA position much safer than just shorting NKLA.

I think the question might just be the ratio of capital.

Yup, it’s already happening, and it’s only going to go down more.

After Elon named his company Tesla, along comes a scam with their machine called Edison. Not to be outdone, a putative truck company circles back and calls itself Tesla’s first name, Nikola.

>After Elon named his company Tesla

Tesla Motors was a thing before Elon was involved.

Tesla coils too!

Those have a right to the name though; Nikola Tesla invented them.

Ah right

Nikola responded to https://hindenburgresearch.com/nikola/ which is a solid read.

Let me get this straight:

Did "Hindenberg" really say that the hydrogen fuel cell wasn't working?

There's a part of me that's happy that there's finally a nice example of technology fraud to point to that's a non-medical tech company. After Theranos, the takeaway has been "biotechs, especially diagnostic companies, especially anything involved with microfluidics, especially if founded by a white female engineer[0], are frauds." Theranos has been explained away as something that happens when Silicon Valley invests in biotech (which is just so stupid - Genentech was founded in the bay...), so instead of using it as an opportunity to rethink what is incentivized and how charisma is rewarded over capability, people instead decided that by adopting a bunch of flawed heuristics, they could avoid the issue forever. Well, here you go! Theranos 2: electric Boogaloo! Turns out Fraud is not industry specific! Who knew!?

[0]I know a founder fitting that description that was put through hell because of all the pattern matching. And in my own startup, there was a point where I just straight up stopped mentioning microfluidics because of all the nonstop pattern matching and the dumb questions that resulted. Its so frustrating.

>Our investigation of the site and text messages from a former employee reveal that the video was an elaborate ruse—Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.

couldn't they just put in battery&motor from golf cart? Or, god forbid, from a Tesla :)

>In October 2019, Nikola announced it would revolutionize the battery industry. This was to be done through a pending acquisition, but the deal fell through when Nikola realized (a) the technology was vaporware

you don't say.

Looking at all that gold rush and Alibaba prices i wonder may be i should start a EV company too. Don't need $20B, i think i can retire comfortably with 3 orders of magnitude less :)

On the bright side. The brakes must be working.

Probably not. They just use friction.

It's interesting to me that they didn't use CGI. Maybe they were afraid people would notice? But tons of car ads are totally CGI.

Back when I was at Dev Bootcamp, before that shut down, some car company came to shoot a car commercial in front of the building. People were expecting to see some cool cars and action on the scene, but I rightly predicted that there would be filming of backdrops, some green screens here or there, all done in a few hours, and no actual cars.

Having looked at the video, I see no reason why they needed a real truck, even if they actually have a prototype. Are they just cheap as f*?

I'm assuming it would have been a bigger scandal / might have been revealed earlier if they had used GGI. "Truck rolled downhill" is harder to proof than "Truck doesn't exist and was done using CGI".

Sure, but it's not in question whether or not BMW or Ford can make a working vehicle. Nikola's ad is an announcement that they can, and in that context it's misleading.

One day they will just film using something like https://www.youtube.com/watch?v=OnBC5bwV5y0 that's easily replaceable post-production with computer generated graphics.

>> But tons of car ads are totally CGI.

As silly as this sounds, it very well may be a cost factor - I am desperately seeking the article but I have read that car commercials actually use a highly advanced form of CGI that is incredibly, jaw-droppingly expensive.

I mean, we could assume they just wanted to be honest and show the real thing; but we obviously know they had no interest in being honest whatsoever and it was obviously designed to mislead.

Car ads use CGI because they need to a lot of localisation and customisation for trim-level specific shots. Making a CGI car ad from scratch might cost $10m+, but you can now do a new shot or make small changes in a day for a few thousand dollars.

If you need a one-off video, it’s cheaper to not use CGI.

We never said the truck wasn’t CGI!

- Nikola CEO

Have you seen this video from Nikola - https://www.youtube.com/watch?v=LbNopvpSbzU ?

It does not look fake.

The video in question is from 2018, the CEO said the truck was functional in 2016.

Your video is from 2020, so all statements can be true at the same time. Nikola likely lied about having functionality for years, but now they do have some functionality.

Wait, they also make a jet ski?!

Correction, made a prototype which can only jet ski downhill.

I'm looking forward to their electric / hydrogen plane, correction, glider.

Why does the truck have a grill/air intake on the front?

H2+O2 -> H2O+Energy

Also, probably radiators for the above.

Tesla cars also have front air intakes (where the “T” is in post-2016 S/X facelift cars, also by the front foglights) for cooling and passenger cabin air.

There are lots of reasons Nikola is fake BS but this isn't one. Hydrogen engines require air intake just like any other internal combustion engine.

What Nikola seems to have done is outrageous, but am I reading it correctly that the short-seller was trading on insider information?

There are a lot of high profile traders who do tons of research, make trades, then "release" their information. The research they do is all from publicly available sources (Ie they don't interview employees), so its not insider trading.

Bill Ackman is probably the most famous person doing this.

I see, thanks.

Where are you reading that?

> But last week, the short-selling investment firm Hindenburg Research published a bombshell report claiming that the Nikola One wasn't close to being fully functional in December 2016. Indeed, Hindenburg published a 2017 text message exchange in which a Nikola employee stated that the company didn't resume work on the truck in the months after the show.

That's insider trading, but not Insider Trading™.

>In the United States and most non-European jurisdictions not all trading on non-public information is illegal insider trading. For example, a person in a restaurant who hears the CEO of Company A at the next table tell the CFO that the company's profits will be higher than expected and then buys the stock is not guilty of insider trading—unless he or she had some closer connection to the company or company officers. However, even where the tippee is not himself an insider, where the tippee knows that the information is non-public and the information is paid for, or the tipper receives a benefit for giving it, then in the broader-scope jurisdictions the subsequent trading is illegal.

Basically, so long as the text exchange wasn't given to Hidenburg in return for some kind of economic favor, there isn't a legal issue.

As Matt Levine likes to say, "Insider trading isn't about fairness, it's about theft".

Insider trading isn't about making the markets fair and giving the same information to all investors. It's about stopping people from trading on information they don't own - i.e. with information owned by the company itself.

If I fly a helicopter and see oil levels in BP's oil tanks, I can trade on that information just fine, even if I mighjt be the only person with that info. If BP calls me up and tells me what their oil levels are in the same tanks, I can't trade on that information, because it was obtained from the company.

Thanks for the clarification.

Looks very similar to the Tesla Semi.

You mean Tesla Semi looked similar to Nikola One? As Tesla Semi was announced one year after Nikola One and there was/is even a lawsuit.


Who here hasn't faked a demo? And this is a very different case then Theranos. They faked the demos and never had a working product. Nikola faked the demo and now has an actual working truck.

Don't lie. You've faked a demo before.

The mess they are in isn't just about faking one demo one time when they were 2 employees in a basement building a landing page. They consistently lied about basically everything, including key and core components.

"In October 2019, Nikola announced it would revolutionize the battery industry. This was to be done through a pending acquisition, but the deal fell through when Nikola realized (a) the technology was vaporware and (b) the President of the battery company had been indicted months earlier over allegations that he conned NASA by using his expense account to procure numerous prostitutes.

Nikola has never walked back claims relating to its battery technology. Instead, Trevor continued to publicly hype the technology even after becoming aware of the above issues. The revolutionary battery technology never existed – now, Nikola plans to use GM’s battery technology instead."

"Inexpensive hydrogen is fundamental to the success of Nikola’s business model. 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." [1]

Tell me again how this is not like Theranos?

[1] https://hindenburgresearch.com/nikola/

How about a company that faked a working phone? A phone where there is only 1 set of workflow that actually was successfuly. A phone that could not play an entire song. And because the CEO knew the phone would crash, even during the only workflow that worked, he had multiple phones on stage that he would swap out when it crashed.

Is that also a lie? Because that's exactly what Steve Jobs did when he debuted the iPhone.


> Is that also a lie?

How is that a lie? On release day, when you got your iPhone, you got exactly what was demoed, not one feature was missing. As an Apple investor I would have no way to know what did and didn't work during that demo, and I wouldn't care because I got exactly what I was promised. I also would not expect everything to work, otherwise why would the release date be 9 months after the demo? And when making that demo, Steve Jobs was convinced (and he made sure he was right) that everything he was demoing would be ready by launch. He did not pretend that the iPhone could do something he very well knew wasn't possible.

Trevor Milton promised things that he knew he would not deliver. He promised things that his company did not do, was not planning to do and did not have the capability to deliver. Where is the Nikola One today? Where is that revolutionary battery that he promised even once he cancelled the deal to buy that (non-existent) tech? Where is that hydrogen he said he was already producing years ago?

Those two things are not remotely comparable.

That’s really not the same thing at all. Demos that crash when you go off the happy path are pretty common (Halo 2’s demo was like this too, for instance).

It doesn’t change that it’s still working software and doing everything its being shown to do (just not capable of doing things that aren’t being shown or demoed).

The equivalent of the truck stunt would be if the iphone demo were just a CGI video of an “iphone” but it was actually just a green-screen piece of metal.

1) I have never faked a demo. People who behave unethically often claim everybody else does it too, to assuage their guilt. These people are deluding themselves.

2) The faked demo is only the icing on Nikola's shit cake. I advise you read the Hindenburg report. Trevor is a serial liar, a true con-artist.

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