This is an audio transcript of the Behind the Money podcast episode: ‘An electric truck start-up founder goes to trial’

[MUSIC PLAYING]

Michela Tindera
A little more than two years ago, the FT’s Claire Bushey hopped on to a conference call to hear about a new deal that General Motors was announcing.

Claire Bushey
The day that the GM deal was announced. I was on the call with a bunch of other reporters, and I was nervous and intimidated because I had only been writing about automotive for like nine months at that point. And so, you know, I’m listening to them describe this deal, and I’m just thinking, like, everyone must know something about this that I don’t understand.

Michela Tindera
Now in this deal, General Motors planned to take a $2bn equity stake in this buzzy new company called Nikola. Just a few months earlier, Nikola had gone public with ambitious plans to transform the trucking industry by manufacturing electric and hydrogen powered trucks. And in exchange for the equity stake, the plan was for GM to engineer and manufacture an electric pick-up truck for Nikola while allowing the start-up to access GM approved parts.

Claire Bushey
They were, they were taking equity in Nikola sort of as payment for producing Nikola’s Badger, which was going to be a pick-up truck, an electric pick-up truck. But it just seemed really strange to me that, you know, if like Nikola is this hot new company and they supposedly have a cutting edge fuel cell electric vehicle technology, like why is GM going to be the company making it? Because why would the company that supposedly has this revolutionary intellectual property not be the company that is making the product?

Michela Tindera
And so on that conference call there’s the CEO of GM Mary Barra and this guy named Trevor Milton, who’s the founder and at the time the executive chairman of Nikola. And so on these kinds of calls, the press gets to ask questions and when it becomes Claire’s turn, she has hers ready.

Claire Bushey
I tried to like ask me like, can you explain this further to me?

Michela Tindera
So what happened when you asked that?

Claire Bushey
Trevor talked a lot like word salad, you know. And again, I was listening, like, as a reporter sometimes you’re just like constantly trying to like, make sense of something. And sometimes that’s because you just don’t understand it. And you, you need to be able to absorb something new. But in some cases, it’s because it doesn’t make any sense. And in that moment, I thought I was in the first kind of interaction, and I was definitely in the second.

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Michela Tindera
As the company’s founder, Trevor Milton was the face of Nikola. He was the one leading these product reveals.

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Trevor Milton
Oh, we’ve been waiting so long to show this the world. You’ve no idea. It’s a . . . It’s hard to even contain my emotion about this.

Michela Tindera
And telling the world about his David versus Goliath vision of his company.

Trevor Milton
You imagine going up against the biggest companies in the world. (Sic) Wasn’t against a neighbourhood company or even a big company. We go up against the biggest in the world, people, $40-$50bn market caps. This is what we’ve been able to show the world we can do.

Michela Tindera
But that weird feeling that Claire had, within mere days of that phone call, something would come out that would totally change the course of this company, Nikola and the life of its founder, Trevor Milton. And ultimately, two years later, it led to Milton finding himself in a New York City courtroom facing charges of fraud.

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I’m Michela Tindera from the Financial Times. On this week’s episode of Behind the Money, we’re digging into the trial of Trevor Milton, the founder of electric truck start-up Nikola, and what this trial says about founder and investor culture today.

[MUSIC FADES]

Claire, thank you so much for coming on Behind the Money. It’s great to have you here.

Claire Bushey
Thank you very much.

Michela Tindera
So, Claire, let’s start with the basics here. Who is Trevor Milton?

Claire Bushey
Trevor Milton . . . He’s 40 right now. He spent most of his childhood in Utah, and he did an interview with a trade publication a few years ago. And he said that his father was a manager on the railroad and that his mother died of cancer when he was a teenager. He dropped out of college, sort of had like a few business ventures that didn’t go anywhere when he was a younger man. And then he kind of stumbled upon this idea of retrofitting diesel trucks so that they could also, like partially run on natural gas, a cleaner form of energy. So he gets involved with this venture in 2009, this is in Utah. And in order to run this business, he raises a lot of money from acquaintances, from people he knows in the Mormon Church. And he gets some midsize companies that want to buy this diesel hybrid system from him.

Michela Tindera
But not long after his company gets hit with a couple of lawsuits. Both are from groups essentially saying that the company wasn’t doing what it said it could do. Both lawsuits are dismissed, and Trevor moves on to something new — Nikola. So, Claire, what was Nikola trying to do?

Claire Bushey
Nikola is supposed to be a hydrogen electric trucking company. So we’re still on this idea of changing the trucking industry so that it has greener emissions, or in the case of hydrogen electric, having zero emissions. You know, that’s the dream. And the idea is that customers will buy the truck from Nikola for about $300,000, and then they will also buy the hydrogen from a system of stations across the country and that Nikola will also get $400,000 over the life of each truck. So, you know, $700,000 for each truck sold, and, you know, like it’s a good idea. It’s just one of those things that’s incredibly hard to do in the execution.

Michela Tindera
So anyway, jumping forward a few years, and in 2020, Nikola goes public. But they don’t go through the usual initial public offering process. Instead, they take this very, you know, in a 2020 sort of way, trendy path. And that is that they go public with a Spac or special purpose acquisition company. Now, we did a whole episode about Spacs a couple of months ago and a lot of the issues surrounding them. So Claire, could you just briefly explain what’s unique about a Spac compared to an IPO?

Claire Bushey
So an initial public offering, basically, private companies sell shares through an investment bank to institutional investors. And a Spac, basically, you have like a shell company that already goes public, and then they find a private company to merge with. And the main difference is that an IPO involves more scrutiny.

Michela Tindera
Right. Spac equals less scrutiny. OK. So then Nikola goes public, and what happens next?

Claire Bushey
So the stock does really well. Trevor Milton is out on Twitter, and he is promoting the stock. It is perceived as, you know, possibly a Tesla rival in some ways. In fact, you know, the name of the company, it’s modelled after the inventor, Nikola Tesla. So it plays on that, and the price of the stock keeps rising. And at one point, very briefly, it had a higher market capitalisation than Ford without ever making a product.

Michela Tindera
OK. So, you know, without putting a product on the market, the company has a pretty great summer, then, all things considered. And, you know, then just after Labour Day on September 8th, Claire, you go on this conference call to hear about this big new GM deal, and you report on that. So what happens next?

Claire Bushey
Two days later, after GM announces their plans to take an equity stake, a short-seller named Hindenburg Research puts out this report. You know, they actually took their name after the blimp filled with hydrogen that famously exploded.

Michela Tindera
Wow. OK. And just to remind listeners, a short-seller’s someone who believes that the price of a stock is going to go down, and they essentially place a financial bet that the stock will drop. So what does this Hindenburg research have to say?

Claire Bushey
Basically, what they say is Trevor Milton has a shady business history, that Nikola does not have its own special automotive technology. They’re just relying on suppliers and saying it is their own. And infamously, Hindenburg research introduces the world to the Nikola in Motion video.

Michela Tindera
That’s right. And so this video that we’re talking about. It still lives on the internet. And I’m actually going to pull it up, and play it here. So could you just describe what we’re actually looking at?

[NIKOLA IN MOTION]

Claire Bushey
So you’re looking out at this sort of vast American landscape of, sort of, you know, burnt grass and desert-like and scrubby little plants. And you’re seeing this long strip of concrete, and there is this truck that is moving. And it has kind of a, sort of a sleek, almost sheared off face. And it’s a, it’s a semi, you know, it’s an 18 wheeler, it’s a, it’s a really big truck. And there’s kind of this like charged music playing. And you see this truck like rolling across the landscape. And, you know, it all seems like very exciting. And the thing is, the land looks flat. And I spoke with someone shortly after the short-seller’s report came out. I spoke with someone who was able to talk about where that was filmed because they had gone and visited the site. And that land is not flat, it’s very much on a grade. And so, yeah, the truck was rolling downhill.

Michela Tindera
Yeah. Because part of your job for reporting on this was you were trying to verify these claims from the Hindenburg Research report where they were saying, hey, no, actually this is rolling downhill. So you needed to go and sleuth that out and actually see if you could confirm.

Claire Bushey
Yes. Yes, exactly.

Michela Tindera
OK. And so to recap, this Hindenburg short-seller report comes out on September 10th, just two days after that big GM deal was announced. What happened after that?

Claire Bushey
So the stock drops immediately. It was like $50.05 on September 8th, and then it drops down to $37.57 by the close of business on the 10th. And Trevor Milton and Nikola just going to like massive damage control. And Milton is a really big fan of Twitter, kind of like this Elon Musk model. And he tweets that this report is a “hit job” because Hindenburg, as the short-seller, is going to make money if the stock price drops. So the company is trying to do damage control, but there’s an awful lot of damage to contain because this report comes out on September 10th, and five days later, we at the FT had a scoop. And we reported that the Department of Justice was investigating them. So lots of damage.

Michela Tindera
So within days of all that, Trevor Milton stepped down from his role as executive chairman at Nikola. And in July 2021, the US attorney for the southern district of New York charged Trevor with two counts of securities fraud, one count of wire fraud and, about a year later, added a second count of wire fraud. So Claire, what did Trevor do? How did he respond to all this?

Claire Bushey
Trevor Milton’s public relations teams puts out a statement saying that he is innocent and that the mere charging of him is an example of trying to criminalise entrepreneurship. You know, he’s, he’s arrested. He posts $100mn bond. And meanwhile, Nikola is continuing to pay his legal bills because that was actually part of his separation agreement with the company.

Michela Tindera
And then finally in September of this year, so just a few weeks ago, Trevor Milton’s fraud trial begins. So, Claire, how’s it all been going?

Claire Bushey
So basically the trial has been three weeks of prosecutors presenting their case and Milton’s defence presented for about a day.

Michela Tindera
OK.

Claire Bushey
And . . . 

Michela Tindera
And what’s the main crux of the prosecutor’s argument then?

Claire Bushey
The main thing that prosecutors are arguing is that he drove up the share price to enrich himself by making false and misleading statements, and that that is fraud. And it’s, from making like hyped-up claims about the technology, saying that they were able to produce hydrogen at a rate like a quarter of the cost of what it actually costs to produce it. And that he specifically targeted small retail investors.

Michela Tindera
And what’s the defence saying?

Claire Bushey
That he was following the company’s marketing plan, and he didn’t say anything he didn’t think was true. That’s because with fraud you have to show that they knew what they were saying was wrong, and they still said it anyway.

Michela Tindera
But at the moment we’re in a bit of a holding pattern with the trial. Before it could conclude last week, the Court adjourned and is scheduled to resume again later this week. But now Claire, what’s been happening at Nikola during all of this? I mean, some people might wonder, you know, hearing everything . . . Does this company still even exist?

Claire Bushey
Well, they have had to recall the 93 trucks that they have so far have produced. And there was an issue with the seat belts and so had to recall them. Turns out manufacturing trucks is hard.

Michela Tindera
Uh-huh . . . Well, you know, this story about Trevor Milton and Nikola, you can certainly see some parallels between this and the events that unfolded with Elizabeth Holmes and Theranos, with Markus Braun and Wirecard. This isn’t exactly a new story. You know, a charismatic or interesting or “brilliant founder” who’s accused of misleading investors. I’m wondering if you can see a common thread between these stories.

Claire Bushey
I think it speaks a little bit to the herd mentality of investment, the assumption that other people have done their homework, even if you haven’t done yours. And that if smart people are investing, then surely it must be a smart investment. And I think that can get out of hand really quickly. And there’s also like a fear of missing out.

Michela Tindera
Do you think there’s any evidence that investors are getting better about not buying into, like, this founder-evangelist type thing?

Claire Bushey
I think that’s a deeply human thing, and I don’t think it’s ever going to go away. I mean, at the end of the day, a couple of things are true. People tend to trust others, and they tend not to do their homework.

Michela Tindera
Yeah, totally. I mean, it’s been a really big thing in the last several years, probably just because there’s been so much easy money sloshing around, but there’s always been people selling things that aren’t what they say they are. You can find that in history books.

Claire Bushey
One of my favourite stories that I covered as a young reporter in a small town in Ohio (Ominous music) was a gentleman who came to town and promised that he was going to build a new stadium for the local high school. And it never happened. And he skipped town and, you know, and there were a lot of really angry, hurt people who were kind of left behind after that. And I remember one of them told me, he would give you the shirt off his back. It just probably hadn’t been paid for. And everyone really liked this guy, you know, until like, until they just couldn’t . . . see it, you know, they couldn’t avoid it anymore. It felt like they really had been done wrong. But like, he was so jovial, well-liked, good company, enjoyable to be around and a good talker, you know?

Michela Tindera
Well, Claire, thank you for taking the time to come on the show. We’ll definitely be keeping our eyes peeled for what happens with Trevor Milton’s trial.

Claire Bushey
Thank you very much.

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Michela Tindera
Behind the Money is hosted by me, Michela Tindera. This episode was edited by Jon Buckley. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Special thanks to Jessica Dye. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.


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