The SEC is examining Nikola for lying about its hydrogen truck's functionality

Nikola has conceded that it faked a 2017 video showing a hydrogen truck prototype driving down a freeway.

The Nikola One hydrogen semi-truck.
Nikola Motors

The Securities and Exchange Commission is investigating Nikola Motors over allegations that it has repeatedly lied about the progress it's made developing its hydrogen vehicles. At the center of the scandal is a 2018 promotional video that shows its Nikola One semi-truck careening down a highway. The video describes the truck as "in motion," but a research firm last week unveiled that the truck wasn't operational and was simply... dragged up a hill and rolled down.

Nikola is betting on hydrogen as the fuel-cells can hold more energy than lithium-ion batteries found in electric cars from Tesla and others. Hydrogen vehicles haven't really taken off, however, because they require fueling stations like traditional cars and there aren't many of those specifically for hydrogen.

High stakes — While the allegations date back to 2018, the fundamental issue is that Nikola is now a public company with many individual investors hoping to get in on the ground floor of another Tesla-like success story. But the deceptive video puts into doubt how far along Nikola actually was in 2018 at developing its vehicles. If some investors were led to believe that Nikola had an operational truck as far back as 2018 when it really didn't, the company could run into legal trouble since intentional deception is considered fraud. It's totally possible that the semi does drive today, but Nikola hasn't demonstrated that. All we have is a faked video.

Nikola's stock is down 8 percent since the investigation was revealed by Bloomberg.

The startup hydrogen automaker responded to the allegations by saying that it "never stated its truck was driving under its own propulsion in the video," even though to many it seemed implied that it was driving under its own power. This is all semantics — if you show a vehicle driving, the expectation is that it's doing so under its own power. Nikola essentially admitted the most damning part of the report. It reminds us of another company, Theranos, which claimed to be capable of completing a full set of blood tests with one droplet but was actually watering down the droplet, thereby reducing the efficacy tremendously.

Also weirdly, the company confirmed that its director of hydrogen production, Travis Milton, is the brother of founder Trevor Milton. Before joining Nikola, Travis was a self-employed contractor pouring concrete driveways and doing other home renovations in Hawaii.

Fast and loose — This isn't the first time this has happened with Nikola. During a 2016 unveiling event for the semi, Milton told an audience that the truck they were viewing on stage "fully functions and works," and isn't a pusher, a term used to refer to a prototype vehicle that's been pushed onto stage. It turns out that, too, was a lie — the truck was pulled onto the stage and missing a drivetrain necessary to power the car.

One thing worth noting is that Nikola has been able to fund itself in part by going public on the stock market through a reverse merger. But reverse mergers are different than regular initial public offerings in that companies going public under a reverse merger undergo far less scrutiny by potential investors and the SEC. Nikola never went on a roadshow and answered questions from professional investors, instead heading straight for the market and cashing in from individuals excited about the potential of sustainable vehicles. It didn't have to make statements to the SEC about its progress either, which would have needed to be truthful.

GM recently partnered with Nikola to produce vehicles using its factories. Following the allegations, the company came out with a statement saying it's not worried. It will be interesting to see if the new SEC investigation changes that. Then again, GM didn't invest any money in Nikola whatsoever and is really just taking the company's money to lease it factory space, so it doesn't have a lot to lose anyway. Except its reputation maybe.