The Company's Denial
The Company's Denial : The Company's Reaction
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| Image Credit: Financial Times |
Just under 3 years ago, Nikola, another in a long line of upcoming electric vehicle companies, found themselves in a deep ditch of controversy surrounding the electric truck technology that was promised and marketed to investors, with a classic corporate twist on the idea of “over promise, under deliver” and false advertisement.
A couple days after Nikola announced its partnership with General Motors early September of 2020, an organization known as Hindenburg Research took the initiative to investigate the company further and evaluate its business practices. Hindenburg Research is a forensic financial initiative dedicated to the uncovering of companies that use a range of shady methods to line their pockets and defraud the public and investors (Source: HindenburgReport). This report, titled, “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America,” laid bare the depths of deception that Trevor Milton, the Nikola’s CEO, has done in his various past entrepreneurial pursuits and most recently, Nikola itself. Nikola’s response? Vague at best.
Nikola decided to draft and release a statement to their website that attempts to argue only a portion of the allegations made. Each statement was a convoluted response with purposefully misleading jargon, designed with the sole reason of further misleading the general public by dodging the allegations. Let us take a deeper dive into these statements.
First and foremost, the company restates some of the “strategic initiatives” that they have undertaken towards becoming the “global leader in zero-emissions transport” (Source: Nikola). However, it is important to note that the company exclusively uses words that indicate that while there are hopes for delivering on these initiatives, there are no such promises or tangible progress made. Phrases such as “the company expects, “expected to start,” and other such inflated promises were made to continue to propagate more and more possibilities while providing no evidence that any such advancement has occurred as of that moment.
Furthermore, each of the Hindenburg statements that Nikola chose to counter was met with equally ambiguous responses. For example, the Nikola One, an electric truck prototype, was described by the report as a pusher car which is a “vehicle that is not designed to be moved by its own propulsion system” (Source: Nikola). Nikola’s response was that since the vehicle was designed to be moved by its own propulsion system, it is, in fact, a real truck, even though it is true that the truck was not able to drive on its own (Source: Nikola). The bell of the ball was Nikola’s released promotion video of the Nikola One prototype in motion and driving seems to have misrepresented the One truck prototype as functional. Nikola’s choice of response was the simply state that they never explicitly said that the truck was functional, the truck was simply “showcased and filmed” that way. Moreover, Nikola claims that the investors were made aware of the One’s capabilities or, in this case, lack of, when they invested (Source: Nikola). More of this dodge-and-weave maneuver is seen throughout the press release coupled with an tremendous lack of evidence to back any of the counter claims presented.
Needless to say, Nikola took a very defensive approach and attempted to revive their reputation with a press release. But, judging by the company’s inability to provide any proof of their prototypes gaining traction towards being completely functional as well as their inability to take responsibility for misleading all third parties involved, the business conducted by Nikola is very questionable. No substantial steps were taken on the company’s to resolve the allegations as well as restore confidence in the company’s initiatives.
The blog post does a good job of summarizing the controversy surrounding Nikola and their response to the allegations made by Hindenburg Research. The content is informative and provides specific examples to support its claims. What was the response of investors and the general public to the allegations made against Nikola? Did the company's reputation suffer as a result, and if so, how did it impact their ability to secure future investments and partnerships?
ReplyDeleteNeedless to say, the company suffered from the adverse effects of both the report and SEC investigation that ensued. Their reputation and stock both plummeted as most large press organizations reported on this scam. Nikola's lies and deception were stripped away, therefore turning their stardom into infamy. Nikola secured no future investments or partnerships, especially when the SEC charged the corporation a fine of $125 million. However, the corporations did retain some of the partnerships secured before the debacle. Companies like Borsch and GM believe that they can salvage what is left of the company and leverage it for their own purposes.
DeleteI think this company is really the epitome of green washing. So much so that they didn't even consider the core principle of their product (hydrogen powered cars) wasn't even scientifically feasible (extracting hydrogen from water uses more energy than the hydrogen produces). Did they ever offer any kind of explanation to this massive hole in their reasoning?
ReplyDeleteYou are not wrong here and this lack of reasoning was also prevalent in the statement the company made in response to the Hindenburg report. Within this statement, Nikola stuck to making responses that reeked of deniability. Each response was hazy at best or referred to their future expectations for what they might achieve. No promises were made about results and the actual development of the technology. Nikola simply stated that they "expect" to develop these products and services soon. This is what the SEC investigated and later charged Trevor Milton, the CEO of Nikola, with fraud and misleading the investors of Nikola into believing that the products advertised were much farther along.
DeleteThere's definitely a lot of holes in the response they gave to the public. I feel like, to an extent, companies are obligated to be honest with its stakeholders, and Nikola is blatantly lying over and over again. This is a phenomenon happening all of the time; companies exaggerating statistics, covering their problems with new products, and so on. I wonder if their investors were compensated in some way? Or, were they just left to suffer for investing in something they thought was real?
ReplyDeleteFrom what I have researched, the investors have not been compensated. To settle the case with the Securities and Exchange Commission, Nikola Corporation did pay out $125 million for the fraud they committed. With every investment people make, there is a risk that they will not be paid back. Especially with new technology, there is always a risk that people take with something so new. I feel that the investors should have understood that there is a risk with their investments and that there could potentially be no returns. We, as students, are always warned about the risks of business practices so we are aware of the results of our actions. Investors would have a similar understanding with their actions and investments.
DeleteThis situation definitely seems like the kind of situation where you start a lie and keep trying to add on to the lie to make it believable. Instead of admitting the truth, they used more technological words to confuse people into thinking its a revolutionary idea. Investors invest if a good pitch and a feasible idea was presented but, in this case it seemed as though they were blindly lead into this.
ReplyDeleteI do agree that investors invest in a company based on an excellent pitch and an out of the box idea. Nikola Corporation had Milton give a confident pitch for their new, out of the box alternative energy idea. People were convinced that hydrogen-electric energy was the future. Nikola was seen as a a genuine competitor of the leading electric vehicle company, Tesla. Though investors were deceived into investing to Nikola, they should have been more understanding of risks. Every investments has the risk of potentially having no returns or gains. This goes for many other aspects of life as well. We are well aware of the risks of our actions and I believe that the investors did have some understanding of the said risk.
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