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Last week, Nikola Corporation (NKLA) scrapped its plans to build 2,500 zero-emissions garbage trucks with Republic Services, Inc. (RSG), its biggest order to date. The canceled partnership is the latest in a series of challenges Nikola faced this past year, including the failed $2 billion deal with General Motors, the departure of company founder and executive chairman Trevor Milton, reports of fraud, and ensuing investigation by the SEC and the Justice Department.
“Given the tidal wave of bad news for Nikola over the last few months, this was not the news that investors wanted to see under their Christmas tree,” Wedbush Securities analyst Dan Ives said in a research note on Wednesday. “The company still has a Kilimanjaro-like uphill climb to gain back Street credibility heading into 2021.” Nikola’s stock has gained 56.3% year to date.
The company said that the Republic deal fell through because the refuse trucks could not be made on the same chassis as the Tre model, and the order was $200 million over budget. “This was the right decision for both companies given the resources and investments required,” said Nikola CEO Mark Russell in a statement.
2020 was supposed to be a landmark year for the Arizona-based startup founded six years ago. In June, the company went public through a reverse merger with VectoIQ, a public special purpose acquisition company (SPAC) led by former vice chairman of General Motors Company (GM) Stephen Girsky.
However, the deal with Republic was the second failed deal in recent months, after an agreement with General Motors unraveled in late November. Instead of a more comprehensive original deal announced in September in which GM would have provided battery and fuel-cell technology to Nikola, manufactured Nikola’s planned Badger electric pickup, and taken an 11% stake in Nikola, GM essentially just agreed to becoming a supplier to Nikola, Fortune reported. Emmanuel Rosner, an analyst for Deutsche Bank, called the slimmed-down deal “particularly negative” for Nikola.
Both deals were spearheaded by company founder Trevor Milton, who left the company in September after Hindenburg Research published a report alleging “an intricate fraud built on dozens of lies over the course of its founder and executive chairman Trevor Milton’s career.”
The Securities and Exchange Commission as well as the Justice Department are investigating these claims, according to reporting by Bloomberg and The Wall Street Journal. Even if these investigations don’t produce anything, the specter of regulatory inquiry is certainly not helping in regaining investors’ confidence.
Meanwhile, the company is focused on its $600 million “pilot” manufacturing plant in Coolidge, Arizona, according to Nikola’s head of manufacturing Mark Duchesne. “We’re going to build the pilot line with a capability of up to 10 trucks a month. And those will be mostly done by hand,” Duchesne said. “Part of the reason for that is it gives all these new people that we’re bringing on board a chance to understand how the vehicle is built before we are under the pressure of production volume.”
Some analyst firms like ISI Evercore find the change in Nikola’s leadership and broader prospects for the future of the electric trucking industry encouraging, calling the next year and a half “vital” for the company.
