Is Nikola the Theranos of Electric Vehicle Start-Ups?

By: Justice Clark Litle

Sep 23, 2020 | News

You may remember Theranos, the blood-testing startup run by Elizabeth Holmes. Theranos was a fraud, but the company reached a multi-billion-dollar valuation by suckering some of the most powerful people in Silicon Valley and Washington, D.C.

Theranos had an “all-star” board of directors that was almost cartoonish in its weight and stature. At various points along the way, the Theranos board included two former U.S. Secretaries of Defense; a former U.S. Secretary of State; two former U.S. senators; a former chairman and CEO of Wells Fargo; and a former head of the Centers for Disease Control and Prevention (CDC).

All of those people were completely conned, lending their reputations and gravitas to a pretend technology that never existed. They were far from the only ones to get fooled.

Near the peak of her celebrity, Elizabeth Holmes appeared on the covers of Inc., Fortune, and Forbes, glowingly profiled as an up-and-coming billionaire set to transform the health care sector. For every cover, Holmes wore a black turtleneck, like her professed idol Steve Jobs.

To keep the mystique intact, Holmes carefully cultivated an eccentric Jobs-like image. She routinely wore all-black clothing, leaving her hair deliberately unkempt, and speaking in an odd baritone that, according to at least one former professor, was much deeper than her normal voice.

In retrospect, it appears Holmes believed in her prototype. But she let the hype get ahead of the technology, and then had to play catch-up. When the prototype failed to actually work, she was stuck. At a certain point, Theranos decided to continue on with deception, in the hope of pulling off a miracle, rather than admitting there wasn’t any there there (because the prototype never actually worked).

Holmes and Theranos were exposed by a Wall Street Journal reporter named John Carreyrou. His reporting ultimately became a book — Bad Blood: Secrets and Lies in a Silicon Valley Startup — that received critical acclaim and multiple business book awards.

A Hollywood movie based on the Carreyrou book, with the actress Jennifer Lawrence starring as Holmes, is still in the works. As for the real Elizabeth Holmes, she is set to go to trial in March 2021, and could potentially be facing a 20-year prison sentence.

We were reminded of Theranos by the fraudulent goings-on at Nikola (NKLA), an electric vehicle startup that recently saw its stock price plunge after the founder and chairman resigned.

In some ways, the Theranos fraud was much bigger, and much worse, than Nikola’s. As part of its deception pattern, Theranos provided faulty blood test results under false pretenses to an estimated 176,000 consumers.

And yet, the peak valuation for Theranos was around $10 billion, a level achieved in 2013-2014. That valuation was achieved as a private company, backed by sophisticated investors. 

Nikola, on the other hand, reached a peak valuation of almost $37 billion on June 9, five days after going public via reverse merger with a Special Acquisition Vehicle, or SPAC.

As of this writing, NKLA shares are down roughly 70% from their June peak. And yet, not unlike the Robinhood favorite Hertz (HTZ) — a stock that still trades, but whose value is probably zero — it is entirely possible Nikola’s true value is zero.

Nikola reminds us of Theranos, in part, because of the caliber and reputation of those who got fooled. That group includes Mary Barra, the CEO of General Motors, who has been recognized for being sharp and competent.

On Sept. 8, General Motors announced a “strategic partnership” with Nikola to jointly produce an electric/hydrogen pick-up truck. The idea was that Nikola would provide the core technology and appeal, while GM would provide the platform and distribution.

It sounded like a smart idea. Investors loved the team-up, and the share price of both companies surged.

But then Hindenburg Research, a short-selling research firm, published a skeptical report on Nikola, accusing the company of conducting an “intricate fraud.” (This is another point of comparison to Theranos, with Hindenburg Research playing a gumshoe role similar to Carreyrou.)

The truth about Nikola turned out to be ugly, to the point of being ridiculous. Within days, Nikola’s founder was forced to resign, causing Nikola’s share price to tank. Bloomberg columnist Tim O’ Brien provided a brutal bullet summary of the report findings:

  • Trevor Milton, Nikola’s 39-year-old founder, made dozens of false statements over the years that helped him parlay what appear to be some very tall tales about Nikola’s technology, production, and performance into a $20 billion stock market valuation.
  • Turning inexpensive hydrogen into auto fuel is key to Nikola’s success, and Milton has routinely said that he succeeded at cutting the cost of hydrogen by about 81% compared with his peers and was already producing it. Neither of those things were true, apparently.
  • Milton appointed his brother, Travis, as “Director of Hydrogen Production/Infrastructure” at the company. Hindenburg said Travis’ “prior experience looks to have largely consisted of pouring concrete driveways and doing subcontractor work on home renovations in Hawaii.”
  • Milton claims Nikola designs all its truck components itself but it appears “to simply be buying or licensing them from third parties.”
  • Milton once staged a promotional video of a Nikola truck cruising along a highway when, in fact, “Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.”
  • Nikola appeared to have padded orders for its products, and some of its early corporate backers cashed out chunks of their stakes in the company, along with Milton himself, after Nikola went public in June.

Wow. That is quite the list.

The mentality of Trevor Milton, the now-disgraced founder of Nikola, bears striking resemblance to that of Elizabeth Holmes.

Here is another visionary, it seems, who had a prototype that almost worked — but not quite — and so he fudged to make up the difference. And then fudged some more, and yet more, as the con grew ever bigger.

But here is the amusing thing, or perhaps the alarming thing: As of this writing — with the fraud exposed and the founder out — NKLA still has a market cap of $10.8 billion. Trevor Milton, as shamed as he might feel right now, is still a multi-billionaire.

One wonders if Elizabeth Holmes is following the Nikola story. If so, she is probably kicking herself.

If only Holmes had run the Theranos scam six years later, with reverse-merger SPAC options and an army of Robinhood superfans to rely on, she might never have been caught.

Or better yet, she might have had the chance to cash out as a billionaire even after being caught, with Robinhood fans holding onto their Theranos shares — and keeping the valuation in the $10-billion-plus range — even after the tech was revealed to be hype and hot air.


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