Troubled EV maker Nikola Corporation has filed for Chapter 11 bankruptcy protection several months after the company revealed that there was a strong likelihood that it would be short on cash in the first half of this year. The Arizona-based firm now wants to sell or auction off its business. How did this promising company descend to this point?
Nikola was seen as a rising star by Wall Street. However, the company and its founder got embroiled in scandal leading to the 2022 conviction of Trevor Milton on charges of misleading investors about the firm’s technology. During the founder’s trial, prosecutors argued that the video which the company touted as a prototype of their hydrogen-powered 18-wheeler truck wasn’t what it was claimed to be. They said that rather than being a functional truck cruising down a highway in the desert, the vehicle in the video was actually a nonfunctioning Nikola Corp truck that had been allowed to roll down a hill.
These claims are a far cry from the perception of the company in previous years. The hype surrounding the firm was so immense that in 2020 the company had a market valuation of approximately $30bn. For context, this market cap was higher than that of Ford Motor, a company that has been successfully operating for more than a century.
Despite the hype, Nikola struggled to scale its business. For example, in Q3 2024, the firm produced just 83 trucks while in Q2 of the same year it made 77 trucks. These quarters were marked by huge company losses to the tune of nearly $200m in Q3 and almost $177m in Q2 2024. The company was bleeding cash, and its operations weren’t scaling up to stem the losses.
With the firm bleeding cash and its founder hauled off to jail for fraud, the company’s stock took a beating and went into freefall. With just $47 million in cash and its share price down to less than a dollar, it wasn’t surprising when news broke that the company had headed to bankruptcy court. The paperwork was filed in Delaware.
The documents show that the firm intends to continue conducting limited operations, such as support and service activities for the trucks which were sold to clients. It will also undertake hydrogen refueling operations up to the end of next month, if court gives the nod to this plan. Thereafter, additional funding will be needed to continue providing those limited services from April onwards.
Other EV makers like Kandi Technologies Group Inc. (NASDAQ: KNDI) need to dig in and ensure that the slackening demand for electric vehicles doesn’t push them into financial difficulties that take them out of the market the way Nikola Corp. has gone.
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