Over the past week, Nikola has taken the media by storm due to their share price increasing over 100% in a single day — reaching a peak market cap of over 26 billion dollars, making the company more valuable than Ford Motor Company. Put in other terms, Nikola reached the market cap that Tesla had a year ago. Tesla hit this point more than 10 years into delivering production electric cars.
Normally a surging "sustainable energy" company would be good news. But when you begin to look at the vaporware more clearly, the wheels start to come off.
First of all, Trevor Milton, the Chairman of Nikola Motors, appears to be trying to emulate Elon Musk on Twitter.
In the past, Musk has called them “fool cells,” “mind-boggling stupid” and “simply not possible” as the go-to alternative to burning fossil fuels — hydrogen's efficiency simply doesn't compare to the battery electric vehicles Tesla produces.
“It’s just very difficult to make hydrogen, store it, and use it in a car. Hydrogen is an energy storage mechanism. It’s not a source” Musk said in a 2015 interview.
“Electrolysis is an extremely inefficient energy process,” Musk went on to explain. “If you charge your battery packs from a solar panel directly, compared with trying to split water, take the hydrogen, dump the oxygen, compress the hydrogen with extremely high pressure or liquify it, put it in a car, and run a fuel cell. It is about half the efficiency. It’s terrible.”
YouTube: Benjamin Stewart
Another concern related to Nikola revolves around how the company went "public." The way that most companies go public is through an IPO process (initial public offering) which includes large financial institutions, financial audits and review by the SEC. Going public comes with a cost — there's a lot of scrutiny involved in order to protect the public.
However, instead of a traditional IPO, Nikola executed a reverse merger. They bought a company that was already on the NASDAQ, and then used that maneuver to list Nikola Motors on the stock exchange. This workaround allowed them to go public without the same financial or regulatory scrutiny.
It's worth noting that a reverse merger tends to be a major red flag (a common strategy used by pump and dump schemes). The Financial Industry Regulatory Authority (FINRA) website provides guidance on detecting pump and dump schemes in "Wake up and smell the pump and dump" and their third tip is to: Check for reverse merger activity.
The Securities and Exchange Commission (SEC) also noted in an Investor Bulletin: "Many companies either fail or struggle to remain viable following a reverse merger. Also, as with other kinds of investments, there have been instances of fraud and other abuses involving reverse merger companies."
In any event, to take a "deep dive" into Nikola and some issues surrounding the company, check out the video below.
YouTube: Tesla Geeks Show
Regardless, Nikola will have some stiff competition when (and if) their semi-truck comes to market. Tesla is fast-tracking its own semi-truck rollout. According to Elon Musk, it's time for volume production of Tesla's Semi truck to go "all out" sooner than anticipated.
Guest Contributor: Eli Burton is proud to be friends with the Real Life Starman and just attended the recent SpaceX launch. He is also President and Founder of the My Tesla Adventure Tesla Owner Club. Eli is also co-host of the Tesla Geeks Show podcast and creator of The Adventures of Starman comic book series.