NKLA Stock Tanks 25% as Nikola Faces Allegations of Fraud and Misleading Investors

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by Bhushan Akolkar · 3 min read
NKLA Stock Tanks 25% as Nikola Faces Allegations of Fraud and Misleading Investors
Photo: Nikola Motor Company / Instagram

The latest report from Hindenburg Research accusses Nikola for defrauding investors about the preparedness of its hydrogen-fuel technology. Stock tanks more than 40% in the last three days.

On Wednesday, September 23, stock of electric-truck manufacturer Nikola Corporation (NASDAQ: NKLA) tanked 25% on Nasdaq after reports of investor-manipulation surfaced. Sources told The Wall Street Journal that talks between Nikola and its potential partners, including British Petroleum (BP), have stalled.

All this happened as popular short-seller Hindenburg Research released a report accusing the company of fraud and lies concerning the preparedness of the technology. Reportedly, Nikola was also in talks with BP to build hydrogen refueling stations. The company has touted making the battery-powered and hydrogen-powered trucks that have yet to hit the streets. Nikola has denied the recent allegations, however, NKLA stock takes a massive beating.

On Wednesday, Nikola stock price tanked 25% dropping to $25.25 at the time of closing. This was the second-straight day of selling as investors continued to liquidate the shares. In the last two trading sessions, the stock has corrected over 45%. It looks like Nikola has turned into shorters’ paradise for now.

The stalled talks would be a major roadblock for Nikola’s plans ahead. The U.S. Department of Justice (DOJ) and also the U.S. Securities and Exchange Commission (SEC) have launched an inquiry into the matter. Earlier on Sunday, Nikola’s founder and former executive chairman Trevor Milton submitted his resignation. Analyst Joseph Spak of RBC Capital Markets told investors that this was a hard but necessary step. He added:

“We believe Nikola’s stock will be in ‘penalty box’ for a while as they look to rebuild credibility with Street. While we won’t defend nor vouch for issues brought up in short report, they have undoubtedly raised a cloud over NKLA — even if many of these issues seem to be from earlier days and potentially not a reflection of where NKLA is now.”

General Motors Comes to Nikola’s Backing

Earlier this month, Nikola also entered in partnership with automobile giant General Motors Company (NYSE: GM) to build its Badger electric pickup trucks. The American automobile giant purchased an 11% stake in Nikola for $2 billion. The deal involved GM supplying battery and fuel-cells for Nikola’s electric tractor-trailer trucks.

In return, GM also gets a seat on Nikola’s board. With the latest reports, GM has stood with Nikola saying that it conducted all due diligence before buying the stake earlier this month.

Nikola spokesperson told WSJ that the company is continuing to work on its potential partnerships. Nikola has also pushed back the claims calling the Hindenburg report “false and defamatory”. However, the founder’s recent exit just days before the news cast more doubts. Is there something more to it than what meets the eye?

The authors of the Hindenburg report say that they’re confident and have proof of the fraud. As the investigation proceeds, it will be interesting to see what happens further. Any wrong doing by Nikola can put GM’s prospects of venturing into electric-bus business at risk. General Motors has been eyeing a space in this segment to take on the mighty Tesla.

Tesla Inc (NASDAQ: TSLA) has left behind all giants when it comes to manufacturing electric-vehicles and spearheaded its way to becomes the world’s most-valuable automobile company in the market.

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