The founder of an electric vehicle company is expected to face significant prison time when he is sentenced Monday in a fraud case that highlights the financial mess left behind by a number of electric vehicle start-ups and their backers.
A federal judge in Manhattan will sentence Trevor Milton, the founder and former chief executive of trucking company Nikola, after a jury found him guilty last year of one count of securities fraud and two counts of wire fraud. Mr. Milton was accused of inflating the value of Nikola's shares by making exaggerated claims about the company.
Mr. Milton told investors that Nikola has working prototypes of zero-emission long-haul trucks, has committed orders worth billions of dollars and is producing low-cost hydrogen fuel. All of those statements are false, said prosecutors, who have asked the judge to impose an 11-year prison sentence and a $5 million fine. Lawyers for Mr Milton, who denied the allegations, asked for his sentence to be suspended.
Few electric vehicle executives have been convicted of crimes, but Nikola was hardly the only new auto company that attracted billions of dollars in investments without turning a profit or producing many cars or trucks, leaving shareholders with huge losses.
Inspired by Tesla's success, investors have poured money into startups like Canoo, Lordstown Motors and Lucid Motors in recent years. Their supporters and executives saw electric vehicles as a chance to challenge established automakers like Ford Motor and General Motors — and get rich in the process.
With far fewer parts than gasoline cars, electric vehicles should, in theory, have been easier to manufacture. But building thousands of cars, establishing brands and meeting safety standards proved much more difficult and costly than many startup executives and their backers expected. Some companies proved more adept at generating lawsuits than cars.
Many of the electric vehicle startups went public by merging with special purpose acquisition companies, allowing the companies to avoid much of the disclosure and regulatory scrutiny that comes with traditional stock IPOs.
Investors who bought these stocks suffered huge losses. Shares of 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 percent of their value since 2020.
One group of investors benefited from this – short sellers, who make money by betting that the stock price will fall. Firms that specialize in uncovering overvalued stocks have feasted on Nikola and other electric vehicle startups.
Mr. Milton's false claims about Nikola were first reported by Hindenburg Research, an investment firm that specializes in uncovering corporate crimes.
Hindenburg also released a report on Mullen Automotive last year in which he accused the company of marketing electric vehicles imported from China as its own and claimed it was close to offering advanced solid-state batteries, a technology that much larger companies like Toyota are still years away. Mullen shares, which peaked at over $3,600 in 2020, recently traded for 13 cents.
A Mullen spokesman said that “many of the points in Hindenburg were inaccurate at the time and are now outdated, making everything now completely inaccurate.” In recent press releases, Mullen announced that the company has begun producing electrical equipment at a factory in Mississippi. truck started.
Another Hindenburg target was Lordstown, a potential electric truck maker that took over a former GM plant in Ohio with help from the Trump administration. President Donald J. Trump hosted Lordstown CEO Steve Burns at the White House in 2020 and called the company's vehicle “an incredible concept.”
Mr. 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 controlled by Mr. Burns purchased machinery and other assets in Lordstown.) Lordstown declined to comment.
Mr. Burns said in an email that he never inflated orders and noted that a study by an outside law firm found inaccuracies in the Hindenburg report. He bought Lordstown's assets and hired some of the company's engineers, Mr. Burns said, because he believes the company has unique technology.
“We aim to build several exciting vehicles under the LandX brand and look forward to announcing our full range soon,” said Mr Burns.
Short sellers are also targeting Faraday Future, a Los Angeles-based company that has delivered nine of its “ultra-luxury” vehicles so far after a decade in business.
After J Capital Research, another short seller, published a report on Faraday in 2021, the company admitted that it had misled investors when it claimed to have 14,000 reservations that were actually unpaid expressions of interest acted.
In September, Faraday said in a regulatory filing that its “corporate culture did not sufficiently prioritize compliance.” The company has also disclosed that it is under investigation by the Securities and Exchange Commission and the Justice Department.
Faraday is cooperating with authorities, a spokesman said in an email, adding that the company has made “significant changes and improvements to processes and procedures to strengthen our governance and internal controls.”
Even for companies that short sellers haven't publicly accused of exaggerating their successes and prospects, producing vehicles has proven incredibly challenging.
Canoo has announced $750 million in orders for its electric vans from Walmart and other customers. The company is increasing production at a factory in Oklahoma, a spokesman said, but he declined to say when it would begin delivering vehicles in large numbers.
Canoo told investors in November that there were “significant doubts” about its survival. Although accounting rules required a warning, Canoo has raised $380 million to finance its expansion, said Chris Nguyen, the spokesman.
Investors have become skeptical even of companies that have managed to produce thousands of cars. Shares of Fisker, which delivered about 3,000 vehicles through early November, have fallen 95 percent from their 2021 peak. Shares of Lucid, which said it plans to produce at least 8,000 luxury electric sedans this year, have fallen 93 percent. Shares of Rivian, a maker of electric pickups and sport utility vehicles that many analysts believe the startup is most likely to survive, have fallen 80 percent.
Less sophisticated investors often bore the brunt of the losses. Mr. Milton, prosecutors said in a sentencing memorandum, “engaged in a sustained scheme to take advantage of individual, nonprofessional investors.” This included posting a video on YouTube of a prototype rolling down a hill, creating the false impression it was made clear that the company had a functioning vehicle.
Mr. Milton also lied about his personal history, prosecutors said. He had said that he dropped out of college to pursue his entrepreneurial dreams, although he was expelled for paying someone to do his academic work.
After selling some of his Nikola shares for $100 million in mid-2020, Mr. Milton spent $83.5 million on luxury items such as a plane and an estate in the Turks and Caicos Islands.
Nikola investors lost more than $660 million, prosecutors said in the memo, rejecting claims from an expert hired by the defense who said the losses blamed on Mr. Milton were far smaller and possibly the same be zero.