Nikola Files for Bankruptcy as Another EV Maker Bites the Dust

Ending weeks of rumors, Nikola (NYSE: NKLA) has filed for a Chapter 11 bankruptcy to join the long and growing list of electric vehicle (EV) and green energy companies going out of business. NKLA is trading sharply lower in premarkets today and trading has been halted in the stock following the bankruptcy news.

The company enters bankruptcy with a cash pile of $47 million and would seek permission to sell its assets to maximize shareholder value. In its filing, Nikola listed assets between $500 million and $1 billion while stating that its liabilities are between $1 billion and $10 billion.

“Nikola, together with its financial and legal advisors, engaged in an extensive analysis of all available and credible alternatives to identify a solution that would allow the business to sustain operations,” said Nikola in its release.

It added, “Following months of actively pursuing these alternatives, the Company determined that a structured sale process represents the best possible solution to maximize the value of its assets. Nikola intends to market and sell all, substantially all, or a portion of its assets and effectuate an orderly wind down of its businesses.”

Green Energy Space Has Been Troubled

The startup green energy space has been quite troubled and earlier this year EV startup Canoo filed for a Chapter 7 bankruptcy. The company joined the ranks of Fisker, Electric Last Mile Solutions, Bird Global Lordstown Motors, and Proterra. All of these companies went public through the SPAC (special purpose acquisition company) route between 2020 and 2022 and capitalized on the EV and SPAC mania to garner attractive valuations.

Nikola Files for Chapter 11 Bankruptcy

“In recent months, we have taken numerous actions to raise capital, reduce our liabilities, clean up our balance sheet and preserve cash to sustain our operations. Unfortunately, our very best efforts have not been enough to overcome these significant challenges, and the Board has determined that Chapter 11 represents the best possible path forward under the circumstances for the Company and its stakeholders,” said Nikola CEO Steve Girsky in his prepared remarks.

Nikola has been facing financial troubles for the last many quarters and has been a perennial cash guzzler. The company raised capital multiple times by selling its shares and convertible bonds but the continued fall in its share price virtually closed that route. Nikola’s market cap fell below its quarterly cash burn which meant that it could not have relied on share sales and would instead have needed a strategic partner who could have helped it commercialize its hydrogen trucks.

Nikola Was Looking for Strategic Partners

During the Q3 earnings call, responding to a shareholder’s question on whether Nikola was actively looking at partners who can provide it with the much-needed capital, CEO Steve Girsky responded in the affirmative.

“We are actively talking to lots of potential different partners who value what we do and value what we’ve built,” said Girsky. He added, “It’s because we’ve been doing the hard work out front building the framework, and we have proof points. We’re on the road today with customers.”

Notably, Girsky is Nikola’s fourth CEO since its 2020 listing but changes in the C-suite didn’t seemingly help the troubled company much and it has officially entered the bankruptcy process.

Nikola Became the Poster Child of the EV Bubble

When Nikola went public in 2020, it was among the first EV SPACs. At its peak in 2020, the company’s market cap was around $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.

NKLA’s Founder Was Sentenced to Prison

Meanwhile, Nikola’s woes began shortly after its bumper listing. 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.”

Eventually, Trevor was sentenced to a four-year prison for defrauding investors. However, Nikola could never recover from its initial setbacks.

Nikola tried to restructure its business to conserve cash and focus on key priorities. It exited Europe to focus on North America and also liquidated the assets of Romeo Power. It laid off employees in multiple tranches and has been lowering its cost base.

The company ramped up sales of its hydrogen trucks last year but wasn’t able to raise enough cash to keep its loss-making operations going which eventually led to its bankruptcy.