Conviction of ex-CEO spotlights EV startups’ lofty claims

A federal judge in Manhattan sentenced Trevor Milton, founder and former CEO of the truck company Nikola, to four years in prison last week after a jury found him guilty last year of one count of securities fraud and two counts of wire fraud. Milton was accused of pumping up the value of Nikola stock by making extravagant claims about the company.

The fraud case highlights the financial carnage left behind by a crop of electric vehicle startups and their promoters.

Milton told investors that Nikola had working prototypes of emission-free longhaul trucks, had billions of dollars’ worth of binding orders and was producing lowcost hydrogen fuel. All those statements were false, said prosecutors, who asked the judge to hand down an 11-year prison term and a $5 million fine. Lawyers for Milton, who denied the charges, asked that he be sentenced to probation.

Milton was also sentenced to three years of supervised release and told to pay a $1 million fine, according to news reports.

Few EV executives have been convicted of crimes, but Nikola was hardly the only new auto company to attract billions of dollars of investment without generating profits or producing many cars or trucks, leaving shareholders with huge losses.

Inspired by the success of Tesla, investors poured money into startups such as Canoo, Lordstown Motors and Lucid Motors in recent years. Their backers and executives viewed EVs as a chance to challenge established automakers such as Ford Motor and General Motors — and become rich in the process.

With far fewer parts than gasoline cars, EVs should have theoretically been easier to manufacture. But building thousands of cars, establishing brands and meeting safety standards turned out to be much more difficult and costly than many startup executives and their backers expected. Some businesses proved more adept at generating lawsuits than cars.

Many of the EV startups listed themselves on the stock exchange by merging with special purpose acquisition companies, which allowed businesses to avoid much of the disclosure and regulatory scrutiny that accompany conventional initial public offerings of stock.

Investors who bought

these stocks have suffered enormous losses. Shares in Nikola — which is still in business, but warned investors in November that it could run out of money in the next 12 months — have lost 99% of their value since 2020.

One group of investors profited — short sellers, who make money by betting that a stock price will decline. Firms that specialize in exposing overvalued stocks feasted on Nikola and other EV startups.

Milton’s claims about Nikola were first reported by Hindenburg Research, an investment firm that specializes in uncovering corporate malfeasance.

Hindenburg also published a report on Mullen Automotive last year that accused the company of marketing EVs imported from China as its own and claiming it was close to offering advanced solid state batteries, a technology that much larger companies such as Toyota are still years away from perfecting. Mullen shares, which peaked at more than $3,600 in 2020, traded recently for 13 cents.

A Mullen spokesperson said that “many of the points in Hindenburg were inaccurate at the time, and now dated, which renders all completely inaccurate now.” In recent news releases, Mullen has said it has begun manufacturing electric trucks at a factory in Mississippi.

Another Hindenburg target was Lordstown, a wouldbe electric truck maker that took over a former GM plant in Ohio with help from the Trump administration. President Donald Trump hosted Lordstown CEO Steve Burns at the White House in 2020, calling the company’s vehicle “an incredible concept.”

Burns resigned after Hindenburg accused him of exaggerating the number of orders for Lordstown’s pickup truck. The company filed for bankruptcy protection in June. (In October, an investment vehicle Burns controls bought machinery and other Lordstown assets.) Lordstown declined to comment.

Burns said in an email that he never inflated orders and noted that a study by an outside law firm had found inaccuracies in the Hindenburg report. He bought Lordstown’s assets and hired some of the company’s engineers, Burns said, because he believes that the business has unique technology.

“Under the LandX brand, we intend to build several exciting vehicles and look forward to announcing our full lineup soon,” Burns said.

Short sellers have also targeted Faraday Future, a company based in Los Angeles that has so far delivered nine of its “ultra luxury” EVs after a decade in business.

After J Capital Research, another short seller, published a report on Faraday in 2021, the company admitted it had misled investors when it claimed to have 14,000 reservations that, in fact, were unpaid expressions of interest.

In September, Faraday said in a regulatory filing that its “corporate culture failed to sufficiently prioritize compliance.” The company has also disclosed it is under investigation by the Securities and Exchange Commission and the Department of Justice.

Faraday is cooperating with authorities, a spokesperson said in an email, adding that the company has “made substantial changes and enhancements to process and procedures to strengthen our governance and internal controls.”

Even for companies that short sellers have not publicly accused of exaggerating their achievements and prospects, producing vehicles has proved incredibly challenging.

During its most recent earnings call Canoo said it has an order book valued at $3 billion, including business from Walmart and other customers for its electric vans. In late 2021 the company said it was planning to shift its headquarters to Northwest Arkansas — a move that never materialized — but since then Canoo has focused on Oklahoma, where it has located a battery plant and a manufacturing facility.

During its third quarter the company booked some revenue but lost $112 million, according to Canoo’s mid-November report. The company has yet to post a profit, and in May 2022 warned shareholders it may not be able to continue as a going concern unless it obtained additional funding. Since then the company has continued to burn through cash but has yet to produce any vehicles in substantial numbers.

Canoo’s shares have tumbled from around $11 a share when it announced its plans to move to Northwest Arkansas to around 24 cents per share in trading Thursday on the NasdaqCM exchange. The company’s shares have traded as low as 22 cents per share and as high as $1.47 over the past year.

In September, Canoo shifted its shares to trade on the Nasdaq Capital Market after Nasdaq put it on notice six months prior that the company no longer met certain listing requirements. The move keeps Canoo’s stock trading on a 24-hour, public exchange and keeps it from over-the-counter trading, but it comes with a ticking clock of its own — Canoo shares need to trade above $1 for 10 consecutive days over the next 180 days or face delisting once again.

Investors have grown skeptical even of companies that have managed to produce thousands of cars. Shares of Fisker, which delivered about 3,000 vehicles through the beginning of November, have fallen 95% from a high set in 2021. Shares of Lucid, which has said it will produce at least 8,000 luxury electric sedans this year, are down 93%. Shares of Rivian, a maker of electric pickups and SUVs that many analysts consider the startup most likely to survive, are down 80%.

Less sophisticated investors often bore the brunt of the losses. Milton, prosecutors said in a sentencing memo, “engaged in a sustained scheme to take advantage of individual, nonprofessional investors.” That included posting a video on YouTube of a prototype rolling down a hill, creating a false impression that the company had a working vehicle.

Milton also lied about his personal history, prosecutors said. He had said that he dropped out of college to pursue his entrepreneurial dreams even though he was expelled for paying someone to do his academic work.

After selling some of his Nikola shares for $100 million in mid-2020, Milton spent $83.5 million on luxuries such as an airplane and estate in the Turks and Caicos Islands.

Nikola investors lost more than $660 million, prosecutors said in the memo, rejecting claims by an expert hired by the defense who said the losses that could be blamed on Milton were far less and possibly zero.

Investors have grown skeptical even of companies that have managed to produce thousands of cars. Shares of Fisker, which delivered about 3,000 vehicles through the beginning of November, have fallen 95% from a high set in 2021.