Today, Explained - Nikola (not Tesla)

Episode Date: October 21, 2022

The bombastic founder of an electric truck startup (no, not Elon) has been convicted for his role in his company’s “intricate fraud.” But even without the crimes, getting EVs to market has proven a lot harder than everyone thought. This episode was produced by Amanda Lewellyn, edited by Matt Collette, fact-checked by Laura Bullard with help from Miles Bryan and Haleema Shah, engineered by Paul Robert Mounsey and Efim Shapiro, and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

You've heard of Tesla, but how about Nikola? Turns out, there's not one, but two electric car companies named after the legendary inventor, and the founder of the other one just got convicted of fraud. Trevor Milton, the 40-year-old founder of electric truck manufacturer Nikola, convicted by a federal jury Friday of one count of securities fraud and two counts of wire fraud. I know this is confusing because the Tesla guy is also borderline committing fraud online all the time. Friday of one count of securities fraud and two counts of wire fraud. I know this is confusing because the Tesla guy is also borderline committing fraud online all the time. A top priority I have, I would have is is eliminating the spam and scam bots and the bot armies that are on Twitter.

But stick with me here. The founder of Nikola was just convicted by a federal jury of fraud bragging about technology he didn't possess to boost the stock value of his company. The story's kind of bananas and reminds us how much work remains to realize Joe Biden's all-electric dream. That's momentarily on Today Explained. The all-new FanDuel Sportsbook and Casino is bringing you more action than ever. Want more ways to follow your faves? Check out our new player prop tracking with real-time notifications. Or how about more ways to customize your casino page with our new favorite and recently played games tabs? And to top it all off, quick and secure withdrawals. Get more everything with FanDuel Sportsbook and Casino. Gambling problem? Call 1-866-531-2600.

Visit connectsontario.ca. What do you think today explained this? I don't know. Sean Ramos from here with Ben Foldy from the Wall Street Journal, who used to write about cars, but now writes about financial crimes, which sort of makes him the perfect person to tell you about Nikola. Yes, Nikola, the first name of Nikola Tesla, the Croatian, I believe, engineer of about a century ago.

What's conducting the electricity? Our bodies, Mr. Angier, are quite capable of conducting and indeed producing energy. So in the summer spring of 2020, there were what I would maybe call the second generation of electric vehicle companies. So the first generation of startups was Tesla, another company called Fisker. Fiskers don't make noise when they start up, just so you know. Fisker Automotive didn't survive, went bust.

And Tesla obviously kind of survived, took off, thrived eventually, and became the most valuable car company in the world in 2020. I don't want to give the impression that I thought Tesla would be successful from the beginning. I actually thought we would fail. You did? Oh yeah, I thought we'd maybe have a 10-20% chance of success. I mean, startups in general fail, and auto startups especially fail. And then you have the second generation of kind of new startups.

Rivian is among the most serious competitors lining up to take on Tesla. Lucid Motors, it has announced that it received a $1 billion investment from the Saudi Investment Fund. EV company Electric, last mile, will begin trading today at the NASDAQ. And so most of those companies started going public around 2020, and Nikola was the first of those. It was the poster child of the exuberance for this kind of second generation of startups. And for people who, you know, maybe thought they missed the boat on Tesla stock,

it was kind of, there was this moment in the summer of 2020 where it seemed like, oh, well, you might have missed the boat on Tesla, but look at all these other new EV companies that can take, you know, these huge market shares and become as valuable as Tesla. We can all agree that whether it is a commercial vehicle, an SUV, a sports car, whatever, chances are within the next decade, they're all going to be electric. And it's a big market opportunity.

And Nikola was the first of those to go public. And it was also the first to kind of fall apart. Where does Nikola's story start? Quite literally, it starts in Utah. Founder named Trevor Milton decided to name his company Nikola. Like some of the best inventions in the world, by coincidence

or by having chance they started in a basement. My basement. And the vision here was that you could have a you know an 18 wheel semi-truck that was powered by what's called a hydrogen fuel cell. It's really that the only fuel out there doesn't create any emissions or byproducts. Incredible. The only byproducts, water. So as this truck goes down the road, the only thing coming out of this truck will be drips of water.

And I think everyone around the world is going to be cheering for that. And this is as opposed to other EV systems, which are just chiefly what, batteries? Yeah, so when most people talk about electric vehicles, they're talking about battery electric vehicles, which use lithium ion batteries, which are the same thing that you'll find in your laptop. But the issue with that is when you're using them at the level that you need to power a car, they're heavy. And the thing about trucking is that the main prerogative of a trucker

is to carry as much weight as possible. And so the more weight you need to have batteries to carry around the weight that you're pulling, the more you're cutting into that weight. Tell me about the guy who was promising this hydrogen fuel cell technology at Nikola. Yeah, so Nikola was founded by a man named Trevor Milton. He's 40 years old. He doesn't have what people might kind of think of, you know, the background of a kind of visionary tech founder might look like. He didn't finish high school. He didn't finish community college. And, you know, instead of kind of those types of experiences, he had these kind of successive businesses, but not in

businesses that you'd necessarily would think lead to a hydrogen truck company either. His first was an alarm business, like Home Alarms. And then he started a company that was like an online marketplace in classified ads, not dissimilar to Craigslist or eBay. And then at the same time, he had this effort to get semi-trucks running on natural gas. And that's where he started kind of breaking into that world. But he's not an engineer. He's not, you know, a programmer. He's not a hydrogen scientist. He's not any of those things.

What he is, is a very good salesman. This truck is by far the most state-of-the-art truck ever built in history. Part of it is his background as a member of the Church of Jesus Christ of Latter-day Saints. Often part of the LDS experience is doing mission. Those type of mission trips end up making very, very good salespeople. And so there's all these businesses around Utah that kind of

try to take in the former missionaries because they're used to rejection. And as one of my sources in Utah put it, if you can sell God, you can sell anything. And so what does he do? What does he sell the world? He did it sometimes through brazen and ambitious misrepresentations. The first time that he shows a Nikola truck to the world, he says it's fully functioning. He says it's chained off so that nobody can get in and drive it into the crowd. It's a little expensive, okay? You could probably buy a jet with what it costs to build this thing. So we're going to try to keep people from driving off. But this thing fully functions and works, which is really incredible. You know, this wasn't known at the time, but it came out later.

That truck could never drive. It wasn't finished. You know, it had hydrogen painted on its side, but had no hydrogen parts. There was no hydrogen fuel cell in it. So these like really core critical systems of the truck were not done. Over a year later, when Nikola, the company put out this video of the truck driving, the tweet said the Nikola won in motion. And it turns out that what they did was tow it to the top of a hill and let it roll down and use, you know, angles and drone shots to make it look as if it's driving at high speed. The most state-of-the-art truck ever built in history.

What? So, you know, I would say the salesmanship ran ahead of the fact, but the fact was always kind of running along behind it trying to keep up. But then, you know, it kind of spins a little bit out of control. The company signs a deal to go public in the first half of 2020. You know, it hasn't sold a truck. It doesn't have a truck to sell yet. It says it has, you know, billions of dollars in pre-orders

but none of them are binding. And Trevor takes to social media to talk about the company a lot. It's so fun to be able to change the world, get rid of emissions, and actually build a truck that can outperform a gasoline version. Because you can't force people into electrification. You need to build better products that are actually better than the gas versions. And that's what we've done with the Nikola Badger. And the things that he starts saying about the company are less and less tethered to the core business of Nikola.

And one of the things that Nikola starts focusing on is a pickup truck called the Badger. Because Tesla came out and showed off the Cybertruck and people thought it was ugly. And people responded well when Trevor tweeted about what it could look like. One of the coolest things is you can literally drink the water right out of it. So what we do is from all the hydrogen that comes out of the vehicle, the byproduct is just water. We take that water, we clean it, we put it into the windshield washer fluid. All the excess is cleaned and sent to a chiller so you can have ice cold clean water as you're driving down the road. And Nikola's stock goes ballistic.

Nikola, that stock is up since, look at that, 88% since going public just last week. Now that is a rally and a half. At its peak, the stock price was so high that it made the company more valuable than Ford and Fiat. It was this real moment of like, what is this company that hasn't sold anything, doesn't have any revenue, hasn't started manufacturing anything, and why is it worth more than Ford, which sells millions and millions of cars a year? It's almost like an Icarus moment where Nikola announces that it has a deal with General Motors, you know, the biggest automaker in America, to make the Badger. And then two days later, a report by a short-selling firm called Hindenburg Research comes out.

Nikola shares are tumbling after a short-seller called the company, quote, an intricate fraud built on dozens of lies. You know, they ran the gamut from the stuff about the truck reveal back in 2016 to Trevor Milton saying that the Nikola headquarters was covered in solar panels. And they, you know, look on Google Earth and they say, no, it is not. So, you know, it's just this range of misrepresentations that they publish. And within a couple of days, you know, it was reported that the SEC was looking into them. And then it was quickly reported that the Department of Justice was looking into them. So it seemed like there was really some smoke here from a regulatory perspective. And then there started being issues with the underlying business. GM pulled back from its

deal. And then about a week or so after the report came out, Trevor Milton stepped down as the executive chairman of Nikola, which again was kind of this like, oh, okay, something happened here, right? Like people don't just step down from the company that they built if there's nothing to the allegations. And then it turned out to be, you know, a pretty serious criminal investigation into Trevor Milton. The founder and former executive chair of Nikola is now on trial in New York. He's charged with lying about the company's products to mislead investors and prop up the stock. Trevor pleaded not guilty and hired quite a powerful defense team to represent him.

That included Brad Bondi, who has previously represented Elon Musk in some of his securities litigation. And he also had Mark Mukasey, who represented former President Donald Trump, as well as Eddie Gallagher, the Navy SEAL, who was acquitted of war crimes. So Trevor pleads not guilty, hires a big old fancy legal team. What do they say he was

up to when he lied about solar panels on the roof of his factory and rolled a truck down a hill? Yeah, so they didn't touch the solar panels. It was an interesting defense in some ways. The argument about rolling the truck down the hill and showing off the truck and, you know, the truck without the fuel cell in it was actually that it was irrelevant. You know, it was before Nikola was a publicly traded company. Nobody bought and sold stock four years prior based on this, you know, event or these videos, you know, and then the other defense was really that Trevor was

talking about the business plan. They actually made the argument in closing that this was a case of somebody being prosecuted for not being careful about what tense they were speaking in, you know, and saying things in present tense that, you know, should have maybe been in future tense. And how does that go for them? Did not ultimately sway the jury. Trevor was convicted of one of the counts of securities fraud and acquitted of the other and then was convicted on both counts of wire fraud. The company has cut all ties with Milton, but the damage is done after reaching that high of more than $80 a share back in June. Nikola shares closed at $3 and change on Friday. Milton now facing a sentence of more than 20 years in prison. I think Nikola tells us this is not easy. Making cars and making trucks has never been easy. It's an incredibly expensive endeavor and proposition.

And the seductiveness of these new startups that were scrappy and lean and had unconventional backgrounds of founders and things like that, they were not able to emulate Tesla in the ways that mattered or have not yet been. And Tesla's success is pretty idiosyncratic and not easily emulated. And I think that's one of the big lessons here.

And I think the other thing too, is that all of those other, you know, those legacy companies, those older companies, they've caught up, you know, they're spending billions and billions and billions of dollars on EVs. Ben Foldy, Wall Street Journal. He's got a whole dang podcast about Trevor Milton and Nikola. It's called Bad Bets. It's season two of that show. Even without the fraud, getting electric vehicles to market is proving harder than everyone thought. That is next on Today Explained. Support for Today Explained comes from Aura.

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You're familiar with the phrase man's reach exceeds his grasp. It's a lie. Man's grasp exceeds his nerve. Today Explained, we're back. We just spoke to Ben about the hijinks at Nikola, but we wanted to get a lay of the land in the EV world at large, so we got in touch with Rebecca Highwell from Recode.

Rebecca, how's this big push to electrify going? It's going well, but it's still pretty early right now. You know, only 4% to 5 percent of the vehicles that are being produced or sold in the United States are electric vehicles. That means the vast majority are still those classic gas-powered internal combustion vehicles. You know, the main challenge is that we have a technology that works, the battery electric vehicle, but just because it works doesn't mean that it's super easy to manufacture, you know, hundreds of thousands and millions of these vehicles and make them mainstream.

Right. And Nikola was taking this hydrogen fuel cell approach, but that isn't the approach the majority of manufacturers are making, right? Yeah. So hydrogen fuel cell technology, people have been talking about it for a while. I actually just bought a vintage sci-fi magazine that was talking about hydrogen fuel tech. So people have been talking about it for a while, but it has really struggled to get off the ground. You know, the vast majority of the electric vehicles that we're seeing in the United States are battery electric vehicles. So those are certainly easier to sort of get rolling than hydrogen fuel cell cars, but they definitely have their own manufacturing challenges too. And that really all goes back to the battery. These batteries require really rare materials or hard to produce materials that aren't necessarily so plentiful that will have enough to produce all the electric

vehicles that car companies want to build. And a lot of these materials need to be extracted or mined. This is not a clean process in any way. You know, the argument is that it's still better to pursue EVs. But, you know, there are real opponents, especially people who live near some of these facilities, you know, which probably have a lot to say about the environmental impacts that these kind of operations have. So there are real trade-offs that need to be considered. We've talked about some of these materials on the show before, like cobalt. Cobalt is at the moment key for batteries. It stops some overheating and allows smaller battery sizes to be made? Yeah, so the chemistry that batteries require can vary a little bit, but there are some materials that it's just very clear that batteries are going to need a lot of.

So there's cobalt, like you mentioned, which almost entirely comes from the DRC, where there are massive concerns about human rights abuses and child labor. So that raises some really important challenges that need to be addressed for getting EVs off the ground. There's lithium, and right now lithium primarily comes from a place called the Lithium Triangle in South America, and in some cases, Australia. There's nickel, which Russia produces a lot of. So that's obviously a challenge for obvious geopolitical reasons and the war in Ukraine. But just adding a second layer of complexity to this is the fact that a lot of these materials need to be refined.

And a lot of that refining currently takes place in China. China controls 80 percent of the world's raw material refining, more than three quarters of global cell capacity, and 60% of the planet's component manufacturing. That means realizing President Biden's transportation future of electric cars would depend on China, unless the U.S. develops its own capacity. And there's a ton of competition for these resources, right? There's a ton of competition for these resources, right? There's a ton of competition. You know, the United States wants to resurrect its legacy as this big auto manufacturing nation. You know, you think of like Motor City and all the big automakers there. But, you know, a lot of countries and a lot of companies around the world sense a major opportunity with EVs.

And everyone wants to get in on being able to extract these materials is trying to put his foot on the pedal a little bit. A lot of bit. American manufacturing is back. Detroit is back. America is back. And folks, we're proving it's never, ever, ever a good bet to bet against the American people. Never, never, never. Yeah, he's putting billions and billions and billions of dollars. So the first way the Biden administration is sort of trying to get EVs off the ground is by investing in that American supply chain for electric vehicles. So that means, you know, subsidizing battery manufacturing, trying to help do some of that work with rare materials here in the United States. I believe we can own the future of the automobile market. I believe we can own the future of manufacturing.

But it also means trying to convince people to actually buy electric vehicles. So we're spending billions of dollars to build a nationwide network of EV chargers. And the hope there is that there are chargers everywhere. People won't feel so nervous about transitioning to electric vehicles. It used to be that to buy an electric car, you had to make all sorts of compromises. But not now. So really a lot of money is going into this right now. And some of this investment has been controversial, right? People ask, why not invest this money in other green initiatives instead of giving auto manufacturers a leg up and subsidizing cars that a lot of people still can't afford? Yeah, there is definitely a major debate about how, you know, the U.S. should be approaching the electrification of transportation.

I think the Biden administration would say, you know, we are spending money on electrifying not just, you know, passenger cars, the kind of cars that a family might own, but also vehicles that are used by the government. There are many tens and thousands and hundreds of thousands of vehicles used by the federal government. They're also, you know, subsidizing the electrification of school buses and things like that. But there is real debate to be had. And, you know, some people say like, yeah, of course we should be using electric vehicles, but maybe it's better to focus on like electric public transportation and that should be the priority. So I think in reality, it's kind of going to be a mix of everything. But this effort doesn't lack criticism. There are definitely criticisms that have been made about how we're going about funding this and whether, you know, who should be benefiting from all this money. Well, I guess if it's happening anyway, one can at least just hope that it'll be successful.

Do these measures Biden has introduced, these massive spending efforts, go far enough to address the supply issues that you talked about earlier. So one of the things to note here is that these companies have committed to make, you know, transitioning away from internal combustion vehicles or even just stop selling them entirely. General Motors has committed to not doing that. And, you know, the trend seems to be there. I think the question is, like, whether it's going to happen fast enough. And every gas car that's sold is maybe a car that could have been an EV. So and that car is going to exist for quite a long time continuing to emit. So it's not just, you know, whether it's going to happen, it's when this will happen. It'll happen fast enough to, you know, deal with a massive climate crisis facing the world right now.

Even though it feels like this is the way the world is heading and it's sort of, you know, deal with a massive climate crisis facing the world right now. Even though it feels like this is the way the world is heading and it's sort of, you know, unavoidable, you still see a majority of gas-powered vehicles on the road and electric cars are still out of reach for a lot of consumers. But, you know, California passed this law saying that they were banning the sale of new gas-powered cars by 2035. How inevitable is the, you know, American vehicle fleet being all electric? I think the future of the car at this point is electric. It's electric! That's not to say that there won't necessarily be gas-powered cars in the future, but, you know, California is the biggest car market in the country,

and I think that sort of hints at what's to come. Again, that matches the same date that GM has set to get rid of selling, you know, its own gas-powered vehicles. So that's sort of the future that we're headed to, and that means taking the promise and also the downsides to the manufacturing of EVs really seriously. That was Rebecca Highwell. She's a reporter with Recode. You can read her work at Vox.com. Our program today was produced by Amanda Llewellyn.

It was edited by Matthew Collette, engineered by Paul Robert Mounsey, and fact-checked by Laura Bullard, with help from Miles Bryan, Halima Shah, and in one case, Paul Robert Mounsey. You've been listening to Today Explained. I've got to move I'm going on a party ride