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Nikola Says It’s Not the Next Theranos

There are questions. Photo: Massimo Pinca/REUTERS

Trevor Milton, founder of fuel-cell-truck company Nikola Corp., was not arrested at Phoenix Sky Harbor Airport on Monday, the company told Fox Business, contrary to thinly sourced TechCrunch reporting that he had been. But he has stepped down as the company’s CEO and from its board, following allegations from the investment fund Hindenburg Research that the company’s stock floats on an “ocean of lies.” Nikola’s stock fell 19 percent on Monday.

The allegations in a report from Hindenburg (which seeks to make money by identifying “man-made disasters floating around in the market” and selling them short before they explode) are reminiscent of those against once-hot blood-testing start-up Theranos: Hindenburg says Nikola made false claims to have developed technologies it hadn’t, claimed to have built working products when those products didn’t actually work, and passed off other companies’ off-the-shelf products as its own. Of particular note, Hindenburg alleges that a promotional video purporting to show an operational Nikola fuel-cell-driven truck was actually produced by towing a motorless truck to the top of a long, slightly pitched hill and letting it roll down.

Nikola issued a response to Hindenburg’s allegations, contesting some of them — though it does not deny rolling that truck down the hill, saying, “Nikola never stated its truck was driving under its own propulsion in the video, although the truck was designed to do just that … 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.’”

One of the core allegations against Theranos was that the company covered up for its lack of working, proprietary blood-testing technology by testing blood samples in off-the-shelf machines from other manufacturers, including Siemens. In one instance, Bad Blood author John Carreyrou described a scheme where Theranos executives would draw a blood sample from a potential investor and load it into a Theranos machine. Then, saying the machine would take some time to run the test, they would offer the investor a tour of the company’s headquarters — during which time they would remove the sample from the Theranos machine and test it on a machine from another manufacturer.

Earlier this month, General Motors agreed to acquire an 11 percent stake in Nikola for $2 billion, in furtherance of a partnership where Nikola technology would be used in GM vehicles. The announcement of the GM deal caused Nikola’s market capitalization to soar from about $13.5 billion to nearly $20 billion. But following the Hindenburg report and the announcement of Milton’s departure, the company’s valuation is down to $10 billion. Still, that’s $10 billion more than Theranos is worth. While the financial markets are alarmed by the allegations of fraud against Nikola, they’re not writing off the company entirely yet.

One argument in Nikola’s favor is that General Motors, which presumably is not run by idiots, looked into Nikola and decided the company had valuable technology. The Hindenburg researchers point out that Theranos was able to obtain valuable contracts with companies such as Walgreens and Safeway, despite its lack of valuable technology. Sometimes, when a product seems cool enough, people don’t ask the right questions — even if they stand to lose a lot of money when they don’t.

Nikola Says It’s Not the Next Theranos