Markets

Why Nikola Stock Blew Up Today

What happened

Shares of electric-truck start-up Nikola (NASDAQ: NKLA) were down sharply on Monday, following the overnight departure of founder Trevor Milton amid allegations that he misled investors.

As of 3:00 p.m. EDT, Nikola's shares were trading down about 17.8% from Friday's closing price.

So what

Nikola's stock -- and Milton -- have been under heavy pressure since Sept. 10, when short-selling firm Hindenburg Research released a scathing report alleging that the company (and specifically, Milton) had misled investors about the state of its technology and business for years.  

Milton is on stage with a red Nikola Two, an electric semi-truck.

Nikola founder Trevor Milton, shown here in 2019, has cut ties with the company amid allegations that he misled investors. Image source: Nikola Corporation.

Milton announced his departure from Nikola in typically dramatic style, with a statement posted to his Twitter feed at 2:21 a.m. EDT on Monday morning: 

​VectoIQ CEO Stephen Girsky, a former General Motors (NYSE: GM) vice chairman, has succeeded Milton as the chairman of Nikola's board of directors. 

While the departure of a founder can be a blow for any early-stage start-up company, it's not clear that Milton's departure will have a negative impact on Nikola over the longer term. While the outspoken entrepreneur has been the public face of the company for months, his departure shouldn't affect operations: Milton gave up his role as CEO as part of the merger deal with special purpose acquisition company VectoIQ Acquisition that took the company public in June. 

Mark Russell, Nikola's current CEO, said in a statement that the company's business plan and priorities remain unchanged following Milton's departure. 

Now what

Two of Nikola's key partners, General Motors and auto supplier Robert Bosch, said in statements on Monday that their relationships with the start-up will not be affected by Milton's departure. But given that Milton's departure seems like an acknowledgment that at least some of Hindenburg's allegations have merit, auto investors are right to have some big questions about the company and its technology.

I think the best thing that Russell and his senior team could do to recover from this mess is to come clean and reset expectations, perhaps via a presentation to investors in a month or so after the dust settles. After that, we'll see.

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John Rosevear owns shares of General Motors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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