The Fall of "The Second Tesla": Nikola's Imminent Bankruptcy

Hydrogen Electric Truck Manufacturer Nikola Faces Financial Collapse Amid Scandal and Poor Performance

Nikola, once hailed as "The Second Tesla," is reportedly on the verge of filing for bankruptcy protection. The hydrogen electric truck manufacturer, which made a spectacular debut on the stock market in 2020 without selling any products, has faced a series of unfortunate events. These include allegations of technical fraud and disappointing sales figures, leading to a steep decline in its stock price.

According to the Wall Street Journal (WSJ), sources revealed on February 6 that Nikola is preparing to file for bankruptcy protection. The company is seeking legal counsel and exploring restructuring options, including selling off shares, in an attempt to regain financial stability.

Nikola made waves in the market when it went public on June 4, 2020, through a merger with a Special Purpose Acquisition Company (SPAC), without having sold a single truck. Despite doubts surrounding the company's technology, Nikola saw an explosive rise in stock price following its debut. The stock price jumped 53.4% from the initial public offering (IPO) price of $22 to close at $33.75. In the following days, the price skyrocketed, reaching $93.99, giving the company a market capitalization of approximately $30 billion, surpassing that of Ford at the time ($28.8 billion).

However, Nikola's rapid rise was soon overshadowed by a report from Hindenburg Research, a short-seller investment firm, which accused the company of being a "sophisticated fraud." The report claimed that Nikola did not possess the battery or hydrogen power technology it had advertised. Hindenburg also revealed that Nikola's promotional video, which showcased the hydrogen electric truck in motion, had been filmed on a downhill road, misleading investors into believing the truck was operating under its own power. This revelation prompted investigations from the U.S. Securities and Exchange Commission (SEC) and other authorities. It was discovered that the truck in the video was, in fact, rolling downhill without its own propulsion. Trevor Milton, the founder of Nikola, was convicted of securities fraud and sentenced to four years in prison for deceiving investors.

In addition to the fraud allegations, Nikola has struggled to deliver on its business promises. In October of the previous year, the company reported disappointing sales figures, revealing that it had sold only around 200 hydrogen-electric hybrid trucks during the first three quarters. Furthermore, the company admitted that while it had enough cash to sustain its operations through the first quarter of the following year, it had no clear plans for securing additional funding after that point. According to Bloomberg, Nikola has experienced operating losses every year since 2020, with an estimated loss of $574 million in 2023 alone.

Following the bankruptcy news, Nikola’s stock price plummeted in after-hours trading on February 6, dropping by 30.6% to just $0.52 per share. The next day, February 7, the price fell further, closing at $0.44, marking a 41.1% decline from the previous day’s close.

Nikola’s story serves as a cautionary tale of how rapidly rising companies, especially in the electric vehicle and hydrogen sectors, can fall from grace. The company’s downfall highlights the risks associated with unproven technologies and the volatile nature of emerging industries, especially when promises fail to materialize, and investors are left with substantial losses.