Nikola Founder Trevor Milton Sentenced to Prison for Fraud

Nikola (NYSE: NKLA) founder Trevor Milton has been sentenced to a four-year prison for defrauding investors. Trevor made fraudulent claims about Nikola’s abilities to pump up its share price but eventually, the bubble burst.

Trevor wept at the hearing and hasn’t admitted to any wrongdoing. He was unapologetic during the hearings and said that he wasn’t a “seasoned CEO.” He added, “I started Nikola because I wanted to leave this earth cleaner than how I found it.”

“Trevor’s enthusiasm, his optimism, his spontaneity, and his ‘deep emotional connection’ to Nikola inspired many of his statements,” his lawyers wrote in a letter to the judge while arguing for a sentence of probation.

They however added, “There is no doubt that Trevor is an ‘ambitious dreamer’ who ‘sometimes gets ahead of himself.’”

NKLA founder Trevor Milton sentenced to prison

Meanwhile, the prosecutors compared Milton to Elizabeth Holmes who is also in prison after she was convicted of a similar fraud. “Just as Holmes lied about Theranos-manufactured blood analyzers, Milton lied about the operability of the Nikola One semi-truck,” argued the prosecutors.

Damian Williams, US Attorney for the Southern District of New York said, “Today’s sentence should be a warning to start-up founders and corporate executives everywhere — ‘fake it till you make it’ is not an excuse for fraud, and if you mislead your investors, you will pay a stiff price.”

In his judgment, Judge Edgardo Ramos said, “Over the course of many months, you used your considerable social media skills to tout your company in ways that were materially false.” He added, “What you said over and over on different media outlets was wrong.”

Hindenburg Research had accused Nikola of fraud

In September 2020, Hindenburg Research released a bombshell report alleging the company of fraud. The report, which came ahead of General Motors’ proposed investment in Nikola (which was eventually called off) said, that “in the face of growing skepticism over the functionality of its truck, Nikola staged a video called “Nikola One in Motion” which showed the semi-truck cruising on a road at a high rate of speed.

It added, “Trevor has managed to parlay these false statements made over the course of a decade into a ~$20 billion public company. He has inked partnerships with some of the top auto companies in the world, all desperate to catch up to Tesla and to harness the EV wave.”

Nikola stock has crashed

When Nikola went public in 2020, it was among the first EV SPACs. At its peak in 2020, the company’s market cap was more than $30 billion and it surpassed Ford’s then valuation. It was among the early signs of an impending bubble in EV stocks. However, thanks to the Fed’s accommodative monetary policies and scores of SPACs hunting for EV targets, the bubble continued to build and only got bigger by the end of 2021.

The SPAC bubble has since burst and many de-SPACs, or the companies that went public through SPAC reverse mergers are now fighting for survival.

Many startup EV companies are finding it hard to survive and earlier this year Lordstown Motors filed for bankruptcy.

Nikola recalled vehicles

Meanwhile, Nikola has struggled with execution and it announced a voluntary recall of 209 Class 8 Tre battery-electric vehicles and halted sales.

Nikola stock has since been in a freefall and fell to its all-time lows. The stock has recovered from those levels but still trades below $1 with a market cap of just under $1 billion. Meanwhile, while Trevor’s conviction ends a chapter for Nikola, the company has been battling other issues.

Nikola’s C-suite has also been in turmoil and it has had four CEOs in as many years most recently Stephen Girsky who was the chairman also took over as the CEO after his predecessor Michael Lohscheller stepped down due to a “family health matter.”

In September, Mary Chan a former General Motors (NYSE: GM) executive as its COO. Chan incidentally was a Managing Partner at VectoIQ II – the special purpose company whose predecessor took Nikola public.

NKLA is restructuring its business

Nikola is restructuring its business to conserve cash and focus on key priorities. It has exited Europe to focus on North America and is also liquidating Romeo Power. It has also laid off employees and has been lowering its cost base.

Due to these measures, it managed to bring down its cash burn in Q3 2023 to just under $120 million and is looking to bring the annual cash burn to under $400 million by next year.

It is also looking to resume deliveries early next year and is particularly bullish on the California market.

EV industry slump

The EV industry is going through turmoil and sales have not been as robust as companies previously anticipated.

Between 2020 and 2021, loss-making companies were able to raise capital quite easily due to the availability of easy money. Now, as the Fed has raised rates to multi-year highs, startups face a funding winter. Even some of the listed names are facing trouble raising funds as not many investors are willing to back perennially loss-making companies with unproven business models.

The road ahead looks quite bumpy for Nikola and other startup EV companies, amid a deteriorating economy and rising competition in the EV industry.