Abstract
Nikola is an electric truck company founded by Travis Milton in 2014. The company started in the private sector, but soon opened stocks to the public. In order to meet demands, the company decided to cut corners that ended up ruining the company. The controversy is over a video that falsifies the abilities of the truck made by Nikola. It was proven that Nikola lied to its investors, so under Utilitarianism, the actions by Nikola were unethical. Because Kantianism is an idea that is strongly against actions such as theft and lying, it will be proven that Nikola is unethical under Kantianism. Individualism involves looking after yourself when it comes to business decisions, so an individualist would see the growth of a young company and agree that whatever they were doing was working best. A virtue theorist would find Nikola and Trevor Milton unethical because he lacks the based on four components: courage, honesty, self-control, and justice. Nikola needs to improve their integrity, so investors and the marketplace can start to believe. It is hard to gain respect and trust after this controversy, but it may be possible when they can honestly show product progress. They must gain integrity and obtain trust from their shareholders in order to be able to grow as a company.
The Case
Nikola, founded in 2014 by Trevor Milton, was created to compete with other electric vehicle companies, specifically in the truck sector. Like many companies, Nikola was initially a private company, yet a stock demand for electric vehicles prompted them to go public. The company joined the NASDAQ, on June 4th, 2020, at a price of 34 dollars a share. (Yahoo Finance, n.d.) Immediately, the value of the company jumped to a little over thirteen billion dollars even though Nikola had only $80,000 in revenue (Hindenburg, 2020).
Later in 2020, a whistleblower came forward with statements about fraud within Nikola. The whistleblower contacted the Hindenburg Research, who was a group of short sellers of Nikola. Short sellers financially benefit when the stock price decreases. One of the things the short sellers were skeptical about was a video that was shared to investors and posted on Youtube on January 25, 2018 titled: “Nikola Motor Company - Nikola One Electric Semi Truck in Motion” (“Nikola Motor Company,” 2020).
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| [Nikola One Electric Semi Truck in Motion] |
This video appeared to have Nikola’s electric
Semi-Truck driving on open roads. Later on, it was proven that the truck in the video was not self-propelled. The truck was rolled down a hill onto a flat road. The video clips used in the commercial were filmed while the truck was on the flat road. The Hindenburg Research identified this fraud based on text messages from a former employee who was present at the filming (Hindenburg, 2020).
Another claim made by the Hindenburg Research Group (Year) was with the batteries that Nikola said they created. Trevor Milton stated on multiple occasions how amazing the batteries made by Nikola were and how they bested other electric vehicles. In 2019, Trevor Milton told Forbes Magazine, “Nikola’s battery cell has double the energy density, only 40% of the weight and half the cost of 2170 lithium-ion cells used in Tesla and other consumer-market electric vehicles. (Ohnsman, 2020) This was later proven false (Hindenburg, 2020). Nikola did not even have a reliable battery at the time, let alone one that was superior to Tesla. This was highly unlikely because Tesla is the leading company in the electric vehicle market.
The lies were already stacking up on Nikola and they were not just lying about their products. Their lies stretched further out- even simple things like the source of power for the Nikola headquarters could not be discussed with Trevor Milton without him deviating from the truth. Trevor Milton stated that the headquarters was being powered by three and a half megawatt solar panels which were located on the roof of the building (Hindenburg, 2020). A flyover of the Nikola building revealed to the public that there were no solar panels at all.
When the accusations against Nikola came out, Trevor Milton denied them. His rebuttal failed to address all of the actual accusations. Milton only responded to the faked commercial and claimed that the commercial never said the truck was self-propelled, so technically Nikola did not lie (Wayland, 2020). Shortly after the report from the Hindenburg Research came out, General Motors announced a deal with Nikola. This deal involved General Motors getting partial ownership of Nikola. In addition, General Motors would allow Nikola to use their facilities to construct their first pickup truck, the Badger. However, the Nikola-General Motors arrangement did not last long.
On September 21, 2020, with hopes of saving the company, Trevor Milton stepped down from his position within the company. This action resulted in a drop in Nikola’s and General Motors stock price (Yahoo Finance, n.d.). In November 2020, General Motors cancelled their plans with Nikola and decided that they would no longer be helping with the building of the Badger. The problem with all of these business decisions is that they do not just affect Nikola but also affect many others.
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| [Nikola Stock Price Dropping Over Last Six Months] |
Stakeholders
There were several primary stakeholders that included the investors, employees, General Motors, and the Hindenburg Research. Each of these stakeholders were greatly affected by Nikola’s actions, but the stakeholders that were most affected by this Nikola issue were the investors. There were three types of investors that were significantly affected: angel investors, equity investors and venture capitalist. The last group of investors, common shareholders, came in after the initial public offering (IPO) and were less impacted.
The first type of investors, angel investors, believed in the idea of Nikola in the early stages. They bought equity in the company when it was private with hopes of making a positive return. These people were affected by the fact that they have no guarantee of return on their investment. They cannot even sell their investment until 90 days after the initial public offering (IPO). In the event of financial distress or bankruptcy, the debtholders are the first to be paid out. Since angel investors are equity-based investors, they have substantial risk in the success of Nikola Motors.
The next type of investors and stakeholders in this case were the venture capitalists. This is the group that the embellished video targeted. Venture capitalists invest because they see the progress being made by the young company and they want to jump in and benefit from the growth. The video showed a promising product and implied this potential for growth. While they still have priority over common shareholders, venture capitalists carry a large amount of risk.
The last type of investor affected was the common shareholder. They bought into Nikola at or after the initial public offering (IPO). Their impact would be dependent on the public stock price versus the loss in stock price following the identification of the fraud.
General Motors (GM) is a company that was looking to invest into Nikola. On September 3rd, 2020, General Motors obtained 11% of Nikola in a merger (Hawkins, 2020). This was shortly before the fraud accusations came out. GM did not identify any fraud or accusations of fraud during their deep dive in Nikola prior to the merger. This resulted in General Motors using their resources, time, and money to work on the deal, just to end up using additional resources, time, and money to cancel. Because of this, in the end, General Motors had a lower stock price than prior to the merger (Yahoo Finance, n.d.).
The only stakeholder that came out on top was the Hindenburg Research Group. As short sellers, the members of Group benefited when the stock price went down. Their entire purpose for exposing Nikola’s action to the world was not for the public- it was done for financial gain. Nikola’s price did take a dive and these stakeholders netted a positive return on their short sale.
Utilitarian
Since it was proven that Nikola lied to its investors, any average citizen might believe that the actions Nikola went through were unethical. Under utilitarianism, the thought process and motivation- not just the actions- of Nikola’s decisions need to be examined. The real question comes down to: did Nikola’s actions try to benefit the majority of people?
On Nikola’s website (Nikola Corp., n.d.) they state, “Nikola executing strategy and vision to deliver innovative technology, energy, and transportation solutions.” Their goal as a company is to increase the availability of electric vehicles. Nikola was also attempting to tap into a semi-truck market; a market that the electric vehicle has not yet perfected. By creating a larger selection of electric vehicles and expanding into the truck market, Nikola seemed to have taken actions that would benefit a majority of people. The faster society can reduce emissions, especially in the truck market, the better this world will be in the long term by switching high carbon output semis to electric. Although Nikola lied to investors, it could be viewed as an action for the greater good. Perhaps Nikola was looking to excite their investors and the world about their electric vehicles. The faster they obtained their funding, the faster the world would get Nikola electric vehicles. So, in promoting their products, Nikola brought in more funding in an attempt to try to increase the speed in which they got product to the market. In this vantage point, it is not about the short-term profits, it is about more electric vehicles on the road. Therefore, those concerned about emissions, the environmentalists, which is the targeted market, would be happy.
The investors did not know about the lies. They viewed the potential profit in Nikola, a fast moving company. Nikola had a significantly improved battery, a working truck, and revenues. The investors believed that their investment would realize a positive return and at initial public offering, this belief was true.
The initial increase in stock value brought in more investors so the initial investors, like the venture capitalists, could profit. Since the investors and environmentalists were happy with the business decisions, Nikola could be viewed as attempting to benefit the majority. Which, under utilitarianism, is ethical.
Kantianism
Kantianism is an idea that is strongly against actions such as theft and lying. Kantianism's fundamental beliefs are not dependent on the number of people that benefit from an action. Therefore, it will be proven that Nikola is unethical under Kantianism.
The Hindenburg Report had a few accusations of unethical moves by Nikola under Kant (Hindenburg, 2020). The first of these was a set of recordings, text messages, and photos from those behind the scenes at Nikola showing the constant lies that were said by founder Trevor Milton. One of these lies was that Trevor Milton claimed he had designed and started producing a new hydrogen cell for Nikola’s vehicle, which cut the cost of hydrogen to operate. When pressured by the media, Trevor Milton came clean and admitted that they could not get their price as low as he had claimed (Hindenburg, 2020). In addition, he also admitted to not starting production of the cells at all. That means his claim was then proven false and a lie. Kant would find just this claim unethical.
Another reason that Kant would not approve of Nikola is because they used people for funding. When Nikola lied to investors it showed that Nikola was using them as a mere means. Nikola needed funding and made the decision to get it through deception. By taking this approach, Nikola shows that they do not actually care about how they got their returns or the reputation of the company which neglected their investors.
Individualism
Individualism involves looking after yourself when it comes to business decisions. Operating under individualism, whenever there are different paths that could be taken, a company will always take the path that benefits them the most. The focus is in obtaining the most profits possible. Most people understand why smaller companies follow an individualistic mindset. This is because the actions of a smaller company do not affect as many people as in a larger company. In addition, many small companies require pursuit and scraping for every profit. Nikola lost this small company feel and status when going public. By law, they are required to release company information to the public.
Nikola is a company that looks only to help themselves. They have screwed over other people and companies to get to where they are. Nikola claims to care about the environment and how their cars will better the world. If so, why would they lie about having solar panels on the roof of their headquarters? It appears that they are just environmentally friendly for their public image. They are only looking after themselves.
Companies that yield significant profits typically agree with Individualism. An individualist would initially agree with Nikola. At an early stage, Nikola was valued at little more than thirteen billion dollars. An individualist would see the growth of a young company and agree that whatever they were doing was working best.
However, an individualist’s viewpoint would not always align with Nikola. From the day the Hindenburg report came out, their stock was down about 62.28% and the value of Nikola dropped all the way to a 7.252 billion market cap (Yahoo Finance, n.d.). Clearly, the actions of Nikola are not supportive of what was best to get the most profits.
Virtue Theory
Virtue theory is an idea based on four components. The components are courage, honesty, self-control, and justice. If you have these four components, then you are virtuous. A virtue theorist would find Nikola and Trevor Milton unethical.
Nikola’s founder Trevor Milton tried four other businesses. He was courageous to work through different ideas until something stuck. Along with that, Nikola was courageous to compete with other well-developed, established companies. Along with that justice is a trait Nikola has just not intentionally. Trevor Milton was forced to step down for the actions. These are the only traits of virtue theory that Trevor Milton and Nikola have.
Honesty is a big factor that is not shown by Nikola again and again they lied directly to the media, the public, and the investor. Honesty is not a trait of virtue theory that Nikola holds.
Along with honesty, Nikola lacks self control. Nikola lost its self control when it went public. They desired the raise in value so much that they were not able to push it back until they were ready. With virtue theory, one needs all four traits. With only two of the four, Nikola would not be virtuous in the eyes of a virtue theorist.
Action Plan
Nikola, as a company, is not ruined. While other companies, such as Nio and Xpeng, passed them in terms of market value in the electric vehicle market, Nikola can still recover if they take the right steps moving forward, and they have already taken a great first step. While originally the company denied all claims of fraud, on September 21, 2020, Nikola Motors sent out a public statement admitting to the claims made against them. (Wayland, 2020). Trevor Milton’s statement to the press was: “The focus should be on the company and its world-changing mission, not me. So, I made the difficult decision to approach the board and volunteer to step aside.” (Nikola Motors, 2020) That was the first step, but moving forward they need to improve their relationship, perception, and openness with their investors. Because of their history, people will be skeptical of Nikola and their claims. Nikola needs to improve their integrity, so investors and the marketplace can start to believe. This will be a difficult path. It is hard to reverse a trend of lies and deception and become a company perceived as honest. Only when they can honestly show product progress, integrity and obtain trust from their shareholders will they be able to grow as a company.
References
Hawkins, A. (2020, September 08). GM acquires stake in electric truck maker Nikola, will help
make the company's first vehicle. Retrieved from https://www.the verge.com/2020/9/8/21427009/gm-nikola-acquisition-electric-hydrogen-truck
Milton, T. (2018, January). [Nikola One Electric Semi Truck in Motion]. Retrieved from
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Nikola Corp. (n.d.). Retrieved from https://nikolamotor.com/
Nikola Motor Company - Nikola One Electric Semi Truck in Motion. (2020, September 15).
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Ohnsman, A. (2020, September). [Nikola Stock Price Dropping Over Last Six Months].
Retrieved from https://www.forbes.com/sites/alanohnsman/2020/09/21/nikola- founder-trevor-milton-reportedly-resigns-after-short-sellers-fraud-accusations/?sh=6e89844618e0
Rapier, G. (2020, August 06). Tesla competitor Nikola quietly discloses its only revenue source
so far: Building solar panels for its founder. Retrieved from https://www.businessinsider. in/thelife/news/tesla-competitor-nikola-quietly-discloses-its-only-revenue-source-so-far-building-solar-panels-for-its-founder/articleshow/77398145.cms
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as chairman in battle with short sellers. Retrieved from https://www.cnn.com/2020/09/ 21/investing/nikola-trevor-milton/index.html
Wayland, M. (2020, September 14). Nikola rebuts fraud claims but acknowledges that its truck
wasn't driving itself. Retrieved from https://www.cnbc.com/2020/ 09/14/nikola-details-false-and-misleading-information-of-short-sellers-fraud-claims.html
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September 28). Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America. Retrieved from https://hindenburgresearch.com/nikola/
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