Under Milton’s leadership, Nikola has risen from startup obscurity in cell-powered vehicles to become a multi-billion-dollar enterprise on the verge of launching its first line of hydrogen fuel cell-powered trucks.
Nikola’s blowout IPO has thrown Milton into the spotlight, revealing some of his personality, character and leadership style. Intriguingly, Milton’s recent public statements, media interactions and investor communications display a remarkable similarity to those of another automotive entrepreneur: Elon Musk, CEO of Tesla Inc. (TSLA). Indeed, the two auto industry disruptors seem to share a proclivity for stretching facts and attacking short sellers.
A penchant for exaggeration
It should come as no surprise that corporate leaders tend to be cheerleaders for their companies and industries. Most executives are only willing to paint the facts in the best possible light. Some, however, fall prey to the temptation of stretching facts for the sake of a more compelling story, or to win over fence-sitting investors. Milton appears to fall into the latter category.
In December 2016, Nikola revealed its first vehicle to the world. Milton displayed the Nikola One to a crowd of investors and journalists as part of a glitzy event that was reminiscent of past Tesla product unveilings. Milton assured the assembled throng that the prototype truck was fully functional and driveable, but according to an article published on Bloomberg, this was not actually the case:
“The statements alarmed people familiar with the truck’s capability, who told Bloomberg News recently that it was inoperable and missing key components to power itself. On Wednesday, Milton said key parts were taken out of the vehicle for safety reasons and that it never drove under its own power.”
This story has remarkable parallels to Tesla’s October 2016 unveiling of the Solar Roof. At a similarly lavish investor and media event, Musk claimed the Solar Roof was fully functional and on the cusp of mass production. As it turned out, the product was anything but ready for commercialization. Indeed, the next three years saw two major redesigns of the Solar Roof. Even now, Tesla is not deploying the product in any significant numbers.
An unhealthy focus on short sellers
Nikola’s stock rocketed skyward in the days following its IPO, eventually topping out at $93.99 a share. On June 8, Nikola’s market capitalization actually surpassed those of established automakers Ford Motor Co. (F) and Fiat Chrysler Automobiles (FCAU, Financial). Evidently Milton considered this achievement worth celebrating publicly, as he took to Twitter to crow about Nikola’s meteoric ascent:
“I've wanted to say this my whole adult life; NKLA is now worth more than Ford and FCA. Nipping on the heels of GM. It may go up or down and that's life but I'll do my part to be the most accessible and direct executive on Twitter.”
Milton’s good mood did not last long, however, as Nikola’s stock lost momentum in subsequent trading sessions. By June 16, he was openly complaining about short sellers and critics:
“Don't listen to fear mongers. Don't follow if you are not in this for the long run. I have more to lose than anyone so I will lead with honesty and integrity. The shorters hate you because they can't control you, the regular guy! Be long if you like Nikola or don't follow us.”
While Milton’s antipathy for short sellers is remarkable more for its alacrity than its intensity, it is a sentiment shared by Tesla’s mercurial CEO. Musk has quarreled openly with short sellers on numerous occasions, going so far as to promise “the short burn of the century” on one occasion. He has even argued that short selling should be made illegal.
Yet short sellers cannot actually affect the operations of a business. All they can do is highlight and expose potential problems, misrepresentations and the like. The best way to prove them wrong is to create value for shareholders rather than actively trying to overblow your stock price to the height of speculatory levels.
When assessing a potential investment in a company, I always devote considerable attention to the subject of management. Capable operators and executives are essential to any company’s success. Generally speaking, when I cannot trust a manager’s statements, I worry. It is also generally considered to be a serious red flag when a company or executive is fixated on criticisms coming from the short side.
Musk has managed to craft a powerful narrative around himself and Tesla that has carried the company’s share price far beyond what any traditional financial analysis or valuation methodology could justify. Milton may be able to do the same with Nikola, but it can prove a perilous strategy when exposed. Even Musk is not immune. A class-action lawsuit born of Musk’s solar antics is heading to court this summer and could end up costing Tesla billions of dollars.
Trevor Milton has the potential to be another Elon Musk, in my view. Whether that would be a good thing for Nikola or its investors is far less clear.
Disclosure: Author is short Tesla.
Read more here:
- Nikola: Good Narrative, Bad Investment
- Amazon: Not Letting a Good Crisis Go to Waste, Part 3
- Airlines Face a Long Road to Recovery
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