The founder of an electric truck company is expected to face significant prison time when he is sentenced Monday in a fraud case that highlights the financial carnage left behind by electric vehicle startups and their promoters.
A federal judge in Manhattan will sentence Trevor Milton, the founder and former chief executive of trucking company Nikola, after he was convicted last year of one count of securities fraud and two counts of wire fraud. Mr. Milton was accused of inflating the value of Nicola’s stock by making extravagant claims about the company.
Mr. Milton told investors that Nikola has prototypes of zero-emission long-haul trucks, has binding orders worth billions of dollars, and produces low-cost hydrogen fuel. Prosecutors said all those statements were false, and they asked the judge to impose an 11-year prison sentence and a $5 million fine. Mr. denied the charge. Milton’s attorneys asked that he be placed on probation.
Few electric vehicle executives have been convicted of crimes, but Nikola is not the only new car company that has not turned a profit or produced many cars or trucks, causing huge losses to shareholders.
Investors inspired by Tesla’s success have poured money into start-ups like Canoo, Lordstown Motors and Lucid Motors in recent years. Their backers and executives saw electric vehicles as an opportunity to challenge established automakers like Ford Motor and General Motors — and get rich in the process.
With far fewer components than gasoline cars, electric vehicles should theoretically be easier to manufacture. But building thousands of cars, establishing brands and meeting safety standards turned out to be more difficult and expensive than many startup executives and their backers expected. Few businesses are more adept at making cases than cars.
Many electric vehicle startups have listed themselves on the stock market by merging with special purpose acquisition companies, which allowed the businesses to avoid most of the disclosures and regulatory scrutiny that come with conventional initial public offerings of stock.
Investors who bought these stocks suffered huge losses. Shares in Nicola, which are still trading but warned in November that investors could run out of cash in the next 12 months, have lost 99 percent of their value since 2020.
One group of investors profited—short sellers, who made money by betting that the stock price would fall. Firms that specialize in exposing overvalued stocks feast on Nikola and other electric vehicle start-ups.
About Nikola Mr. Milton’s false claims were first reported by Hindenburg Research, an investment firm specializing in uncovering corporate malfeasance.
Hindenburg also issued a statement Mullen Automotive Last year the company accused it of marketing electric vehicles imported from China and said it was close to offering advanced solid-state batteries, something bigger companies like Toyota are years away from. Shares of Mullen recently traded at 13 cents, above $3,600 in 2020.
A Mullen spokesman said, “Many of the points in Hindenburg were inaccurate at the time and are now dated, which now makes them all completely false.” In recent press releases, Mullen has said it has begun producing electric trucks at a factory in Mississippi.
Another Hindenburg target was Lordstown, an electric truck maker that acquired a former GM plant in Ohio with the help of the Trump administration. President Donald J. Trump hosted Steve Burns, Lordstown’s chief executive White House In 2020, the company called the vehicle “an incredible concept.”
Mr. Hindenburg accused him of overstating the number of orders for Lordstown’s pickup truck. Burns resigned. The company filed for bankruptcy protection in June. (In October, the investment vehicle Mr. Burns Controls bought machinery and other Lordstown assets.) Lordstown declined to comment.
Mr. Burns said in an email that he never raised the orders, and noted that an investigation by an outside law firm found errors in the Hindenburg report. He purchased Lordstown’s property and employed some of the company’s engineers, Mr. Burns said that’s because he believes the business has unique technology.
“Under the LandX brand, we intend to develop many exciting vehicles and will soon announce our entire line-up,” said Mr. Burns said.
Short sellers have also targeted Los Angeles-based Faraday Future, which has delivered nine “ultra-luxury” electric vehicles so far after a decade in business.
Another short seller, J Capital Research, admitted in 2021 after issuing a report on Faraday that it misled investors when it said the company had 14,000 reservations, which were actually unpaid interest exposures.
In September, Faraday filed a regulatory filing saying its “corporate culture failed to adequately prioritize compliance.” The company also disclosed that it is under investigation by the Securities and Exchange Commission and the Department of Justice.
Faraday is cooperating with authorities, a spokeswoman said in an email, adding that the company has “made substantial changes and improvements to our process and procedures to strengthen our governance and internal controls.”
Even for companies that don’t publicly accuse short sellers of exaggerating their accomplishments and prospects, making vehicles is incredibly challenging.
Canoo has announced $750 million worth of orders from Walmart and other customers for its electric vans. The company is ramping up production at a factory in Oklahoma, a spokeswoman said, but declined to say when it would begin delivering vehicles in larger numbers.
Kano told investors in November that he had “substantial doubt” that it would survive. Canoo has raised $380 million to fund its expansion, spokesman Chris Nguyen said, though accounting rules require caution.
Investors are skeptical even of companies that have managed to produce thousands of cars. Shares of Fisker, which delivered about 3,000 vehicles in early November, have fallen 95 percent from their 2021 highs. Shares in Lucid, which said it will produce at least 8,000 luxury electric sedans this year, fell 93 percent. Shares of Rivian, a maker of electric pickups and sport-utility vehicles, fell 80 percent after many analysts said the start-up had a better chance of survival.
Less sophisticated investors often bore the brunt of the losses. Mr. Milton said prosecutors in the sentencing memo “engaged in a sustained scheme to take advantage of private, professional investors.” That included posting a video on YouTube of a prototype rolling down a hill, creating the false impression that the company had a working vehicle.
Mr. Milton also lied about his personal history, prosecutors said. He had said he dropped out of college to pursue his entrepreneurial dreams despite being expelled for paying someone to do his academic work.
After selling some of his Nicola shares for $100 million in mid-2020, Mr.
Nicola investors lost more than $660 million, lawyers said in the memo, adding that Mr. He rejected claims by an expert hired by the defense that the losses Milton could be blamed for were minimal, perhaps zero.