Nikola Drops 9% on Report SEC Is Probing Short-Seller’s Fraud Claims

Shares in Nikola are plunging 9% in Tuesday’s pre-market session amid a Bloomberg report that the US Securities and Exchange Commission (SEC) is examining the merits of short-seller Hindenburg’s allegations that the electric truck maker misled investors about its business prospects.

Shares are dropping to $32.60 in pre-market trading. On Monday, NKLA (NKLA) closed 11% higher after the company issued a lengthy statement to set the “record straight” on the “false and defamatory” report published by Hindenburg Research on Sept. 10. In the report, Hindenburg claimed that Nikola is an “intricate fraud built on dozens of lies”.

The short seller said that it has has gathered extensive evidence – including recorded phone calls, text messages, private emails and behind-the-scenes photographs – detailing dozens of false statements by Nikola founder Trevor Milton, concluding that it has “never seen this level of deception at a public company, especially of this size”.

Nikola rebuffed the allegations made in the Hindenburg report, saying that the “opportunistic timing of its publication shortly after announcement of its partnership with General Motors Co. and the “resulting positive share price reaction, was designed to provide a false impression to investors and to negatively manipulate the market in order to financially benefit short sellers, including Hindenburg itself”.

“Nikola has contacted and briefed the SEC regarding Nikola’s concerns pertaining to the Hindenburg report,” Nikola said in a statement. “Nikola intends to fully cooperate with the SEC regarding its inquiry into these matters.”

Since Nikola went public on June 4 via a merger with VectoIQ, the stock soared from below $15 to around $50 earlier this week, following the announcement that General Motors will take a 11% stake the company as part of a partnership to build electric pickup trucks. Shares in the company, which plans to manufacture hydrogen-electric trucks but has not yet produced or sold any vehicles, have plunged 48% over the past 3 months. (See NKLA stock analysis on TipRanks)

Wedbush analyst Daniel Ives maintains a Hold rating on NKLA with a $45 price target (26% upside potential) saying that it “remains a “prove me” stock in the eyes of investors with the bears jumping on this story.

“We continue to believe seeing the forest through the trees that Nikola is a story stock now and its all about execution looking ahead through 2023,” Ives wrote in a note to investors. “If Trevor and the team can successfully build out its Arizona factory, morph prototypes into models (both on Badger and trucking front), lay the groundwork for its charging network, and catalyze delivery trucking orders with an attractive gross margin structure then the opportunity for NKLA is massive and the stock will reflect this dynamic.”

“However, clearly there is much wood to chop to get there over the next 12 to 18 months,” the analyst added. For now, NKLA has 5 analysts covering the stock, who are divided between 2 Buy ratings and 3 Hold ratings adding up to a Moderate Buy consensus. The $55.75 average price target puts the upside potential in the shares at another promising 56% over the coming year.