UPDATE: As of Monday, September 21, Nikola's former Executive Chairman and co-founder Trevor Milton stepped down from the company amid fraud allegations levied by Hindenburg. 

It was supposed to be such a good week for Nikola ($NKLA).

Just three short days ago, the electric vehicle company wrangled in a $2 billion investment from General Motors ($GM) as part of the latter’s effort to invest in electric or hybrid vehicles. The deal would help them develop an electric pickup truck and finally set the fledgling startup on the path to compete with the big boss of electric vehicles in Tesla ($TSLA).

Today, that all went wrong. A research firm appropriately named Hindenburg has accused the company of a massive fraud which has sent Nikola’s stock on an 18% death spiral as of the time of writing. Hindenburg alleges that Nikola vastly overstated the capabilities of its technology and vehicles and claims its partners “didn’t do their homework.”

Nikola Founder and Chairman Trevor Milton took this about as well as you could expect.

That’s to say, not very well at all. 

After the investment from GM earlier this week, stocks shot up 53% and Nikola looked like it was barrelling towards success. Now, they could be on track to join the ranks of great startup fraudsters in history like Theranos.

So how did we get here? How did Nikola go from a promising electric vehicle company signing deals with giants to staring into the abyss? The truth is it may have been coming all along.

Nikola and Tesla

Founded in 2015 by Trevor Milton, Phoenix-based Nikola seems to have wanted to set itself apart from Tesla in everything but name. Perhaps positioning itself as the flipside of Tesla’s coin,  Nikola focused on electric vehicles in the freight transport and motorsport spaces whereas Tesla’s cars are for more general consumer use.

But the real factor that set it apart from Tesla is what powered their vehicles. Whereas Tesla’s vehicles are powered by batteries, Nikola’s are powered by hydrogen. Though they use the same electronic components that make Tesla’s cars whirr, Nikola claims that its hydrogen-fueled vehicles eliminated some of the downsides of electric vehicle batteries like limited range and increased weight.

Whereas the Nickel required to create electric vehicle batteries is a limited resource that is in high demand, Nikola had access to its own machines to pump out as much hydrogen as it needed to run its operation - a strong argument in favor of Nikola’s longevity as compared to Tesla’s.

Just one short year later, Nikola would reveal its first vehicle to the world.

Signs of trouble

That first event went well. The “Nikola One” freight truck prototype was touted to the world as a fully functioning, drivable vehicle. Onlookers could get up close and personal with the controls, but were blocked off with a chain - Milton said that he didn’t want anyone driving off with the thing in the middle of the show.

The vision behind the Nikola One was a beautiful one to many; that our economy which increasingly relied on international and interstate commerce could begin to make steps towards an emissions-free future thanks to Nikola’s technological developments.

"We’ve been waiting so long to show this to the world, you have no idea. It’s hard to even contain my emotion about this." — Trevor Milton, 2016

But it turns out that even that first showing may have been too good to be true. Bloomberg reported in June of this year that the 2016 event was riddled with mistruths and tall tales from the get-go. No, the truck was not driveable. There  No, it was not fully functioning. Bloomberg reported that those familiar with the vehicle and event were stunned as Milton made repeated false claims as to the vehicle’s capabilities right there and then on the showroom floor. Milton denied all the claims.

In retrospect, and with this week’s news, it's easy to cast a shadow over the entire history of the operation. But at the time, Nikola presented an exciting opportunity for eco-friendly, technological advancement. Over the next few years as Nikola continued to announce products, Tesla’s presence would only skyrocket and electric vehicles would come to be seen as the way of the future by legacy vehicle manufacturers like GM and ridesharing businesses like Uber ($UBER) alike. 

The Hindenburg Disaster

Nikola only very recently went public, debuting on the market in June 4 of this year. Shortly after its debut, the stock shot up to an impressive $74 per share, solidifying their position as a legitimate name in the electric vehicle industry and positioning it to become a disruptor to disrupt the other disruptors. Nikola was going to make Tesla, the very image of a futuristic car, look doomed and obsolete.

But very shortly afterwards, the dream began to collapse. The first sign of trouble came when Bloomberg’s story about the 2016 Nikola One event was published. Markets didn’t react negatively, however, climbing comfortably back up to $75 per share just a few short days later. Still, investors began to give Nikola the side eye, skeptical about the businesses entire fleet of vehicles that exist only as digital renders and nothing more. The real blow, however, came at the end of June when investors dumped stock after fears that they could soon be diluted. Nikola was no longer the bright guarantee of a better future and suddenly became a risk. Throughout the months of July and August, Nikola’s share price would sit around $30; less than half the value of their debut.

And now we’ve come full circle to this week’s disaster. The rug has been pulled out from under Nikola and the veil lifted, and the allegation from Hindenburg that the entire business is built upon fraudulent claims has sent their stock tumbling at high speeds.

Milton is preparing to fight back, however. On Twitter, he shared images of their vehicle's production process with the challenging line, “do these look fake?” In its short history so far, and especially its short history as a public company, Nikola has seen ups and downs that take most companies decades to experience. Whether Nikola is a honest-to-goodness company or a massive lie, it will no doubt make an imprint on the history of startups.

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