Nikola Short Sellers Are Now Making Money as GM Scuttles Deal

Short sellers are finally making bank in Nikola, the onetime darling among special-purpose acquisition companies that has been tarnished by a September short seller’s report, subsequent regulatory probes, and —  as of this week — the breakdown of a critical deal with automaker General Motors. 

On Monday Nikola announced that GM was walking away from its planned equity stake in the embattled hydrogen-fueled truck maker. The move dealt Nikola a crushing blow. 

The stock immediately plummeted, putting short sellers in Nikola in the black for the year to the tune of $309 million, after they made $414 million in marked to mark profits that day, according to a report from S3 Partners, which tracks short selling. Nikola shares initially plunged 26 percent on the GM news. 

“With shorts once again profitable… and the stock price trending downward, it looks like Nikola’s recent short selling trend should continue,” wrote Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Nikola, which went public through a merger with a blank-check company in June, has become the third-largest short in the auto sector (below Tesla and Chinese electric carmaker NIO), with short interest of $1.6 billion. Nikola’s short interest is 42.53 percent of the float, according to S3Partners. 

“Short selling has increased as overall trading in the stock has spiked,” Dusaniwsky said. 

[II Deep Dive: Egregious Founder Shares. Free Money for Hedge Funds. A Cluster***k of Competing Interests. Welcome to the Great 2020 SPAC Boom.] 

The report noted that the stock was also being hammered by the lockup expiration of the 91.6 million shares of founder and former chairman Trevor Milton — shares worth more than $2 billion.

Milton was forced out of Nikola following a scathing September 10 report by Hindenburg Research that claimed the truck was “an intricate fraud built on dozens of lies.” While Nikola has denied the accusations, the Securities and Exchange Commission and the Department of Justice are examining his claims.

The stock, which fell on Hindenburg’s report, had begun to trade back up in recent weeks. 

“I think a lot of people were waiting for clarity on the GM relationship,” Hindenburg’s Nate Anderson told Institutional Investor in a direct message on Twitter, who added, “We think GM made the right long-term decision.”  

The outlook is not good, he says, referring also to Milton’s lockup expiration: “With a major share unlock coming up imminently, Nikola is likely in for a rough ride.” (Hindenburg is still short Nikola, he added.)

The Hindenburg report was published just two days after Nikola and GM announced a groundbreaking deal in which the automaker would receive a $2 billion equity stake in the upstart truck maker in return for a number of “in-kind services.” 

Under the new agreement — which is non-binding — GM will sell fuel-cell technology to Nikola, but there will be no equity stake. Plans for GM to produce an electric pickup truck, called the Badger, were scrapped. 

In a statement Monday announcing the new GM deal, Mark Russell, Nikola’s CEO, put on his best face: “We are excited to take this important step with GM, which provides an opportunity to leverage the resources, strengths and talent of both companies,” he said.

“Heavy trucks remain our core business and we are 100 percent focused on hitting our development milestones to bring clean hydrogen and battery-electric commercial trucks to market,” he continued. “We believe fuel-cells will become increasingly important to the semi-truck market, as they are more efficient than gas or diesel and are lightweight compared to batteries for long hauls. By working with GM, we are reinforcing our companies' shared commitment to a zero-emission future.”

In addition to losing GM as a significant partner, Nikola is mired in investigations. According to its most recent quarterly filing with the SEC, five of its officers and employees and three of its directors have received subpoenas from the SEC. Nikola and founder Milton also received grand jury subpoenas from the U.S. Attorney’s Office for the Southern District of New York, and Nikola got one from the New York County District Attorney’s Office.

“The company has cooperated, and will continue to cooperate, with these and any other regulatory or governmental requests,” Nikola’s filing said. 

The hype around electric vehicles and Tesla’s stupendous surge this year initially boosted Nikola. In early June, the stock traded as high as $79, a near-700 percent gain on the IPO price of $10. And even with Monday’s close at $20.41, it’s still double that.