Controversial electric vehicle (EV) manufacturer Nikola (NASDAQ: NKLA) is set to pay $125 million to the Securities and Exchange Commission (SEC) following the settlement of a long-running fraud charge. The auto company had been under investigation following a PR campaign organized by its then CEO Trevor Milton.
Milton, now under criminal investigation for fraud by the Justice Department himself, was said to have made numerous misleading claims in order to pump Nikola’s stock price and keep it at overly-inflated levels. The SEC adjudged that Nikola was responsible for the claims made by its now-former CEO, and as such must pay the penalty.
What was Nikola’s lawsuit actually about?
The charges against Nikola all revolve around claims made by Milton; the company’s founder. The majority of these claims involve Milton giving a false impression of the true capabilities of Nikola’s products. Numerous examples were cited throughout the lawsuit.
Some of the worst falsehoods included a YouTube video claiming that a Nikola truck was moving under its own power only for it to actually be rolling downhill, and a 2016 event where Milton claimed a truck was fully operational despite actually being connected to an external power source.
All of this comes as the SEC is initiating a widescale crackdown on special purpose acquisition companies (SPACs). Nikola is one of a number of EV startups to be under federal investigation regarding investor fraud, with both Lucid and Canoo also feeling the weight of the SEC.
So is Nikola a good investment?
Despite the company being “pleased to bring this chapter to a close” there are still a lot of questions surrounding Nikola for potential investors. It remains to be seen if the company can actually produce its prototypes in any meaningful fashion, and investors will be wondering just how the company plans to appropriately scale its operations.
Nikola will also have to do a lot to convince potential shareholders of the value of its products after such a harmful public lawsuit around defrauding customers. Trust is hard to build, particularly after getting caught lying so blatantly about the quality of its products.
The company is also suffering from increased competition within the EV space. Despite focusing on trucks for the transport industry, Nikola is having a difficult time emerging as a leader within the space.
While I’m truly confident that EVs are indeed the future of transport, I’m hesitant to recommend Nikola as an investment when so many other EV companies have already proved their worth. Until the firm can begin to make good on its lofty promises, your money would probably be better off elsewhere.
Financial Writer at MyWallSt
Pádraig’s favorite stock is Nike. Growing up as a sports fanatic, seeing Nike collaborate with athletes like Jordan, Lebron, and Ronaldo inspired him and cemented the brand in his mind. Now, despite having failed miserably in his attempts to earn a fabled Nike sponsorship, he still believes in the innovation and creativity behind Nike and is convinced they will only grow stronger as the world's leading sports brand.