Founders of electric vehicle startups made big claims. Now one could go to prison.


The founder of an electric truck company is expected to face a significant prison sentence when he is sentenced Monday in a fraud case that highlights the financial carnage left by a series of electric vehicle startups and their promoters.

A federal judge in Manhattan will sentence Trevor Milton, founder and former CEO of trucking company Nikola, after a jury found him guilty last year of one count of securities fraud and two counts of wire fraud. Milton was accused of inflating the value of Nikola's stock by making outlandish claims about the company.

Milton told investors that Nikola had working prototypes of emissions-free long-haul trucks, had binding orders worth billions of dollars and was producing low-cost hydrogen fuel. All of those statements were false, said prosecutors, who asked the judge to impose an 11-year prison sentence and a $5 million fine. Mr. Milton's lawyers, who denied the charges, asked that he be sentenced to probation.

Few electric vehicle executives have been convicted of crimes, but Nikola was not the only auto startup to attract billions of dollars in investments without turning a profit or producing many cars or trucks, leaving shareholders with huge losses.

Inspired by Tesla's success, investors poured money into startups like Canoo, Lordstown Motors and Lucid Motors in recent years. Its backers and executives saw electric vehicles as an opportunity to challenge established automakers like Ford Motor and General Motors, and get rich in the process.

With far fewer parts than gasoline cars, electric vehicles should, in theory, have been easier to manufacture. But building thousands of cars, establishing brands and meeting safety standards turned out to be much more difficult and expensive than many startup executives and their backers expected. Some companies proved to be more adept at generating lawsuits than automobiles.

Many of the electric vehicle startups went public by merging with special purpose acquisition companies, allowing the companies to avoid much of the disclosure and regulatory scrutiny that accompany conventional initial public offerings.

Investors who bought these stocks have suffered huge losses. Shares of Nikola, which is still in business but warned investors in November that it could run out of money in the next 12 months, have lost 99 percent of their value since 2020.

One group of investors benefited: short sellers, who make money by betting that the price of a stock will fall. Companies that specialize in exposing overvalued stocks reveled in Nikola and other electric vehicle startups.

Milton's false claims about Nikola were first reported by Hindenburg Research, an investment firm that specializes in uncovering corporate wrongdoing.

Hindenburg also published a report on Mullen Automotive last year in which it accused the company of marketing electric vehicles imported from China as its own and claimed that it was close to offering advanced solid-state batteries, a technology that much larger companies like Toyota still They are years away from perfecting. . Mullen shares, which reached a high of more than $3,600 in 2020, were recently trading at 13 cents.

A spokesman for Mullen said that “many of Hindenburg's points were inaccurate at the time and are now outdated, making them completely inaccurate now.” In recent press releases, Mullen has said that he has begun manufacturing electric trucks at a Mississippi factory.

Another Hindenburg target was Lordstown, a potential electric truck maker that took over a former GM plant in Ohio with the help of the Trump administration. President Donald J. Trump hosted Lordstown CEO Steve Burns at the White House in 2020 and called the company's vehicle “an incredible concept.”

Burns resigned after Hindenburg accused him of exaggerating the number of orders for the Lordstown truck. The company filed for bankruptcy in June. (In October, an investment vehicle Mr. Burns controls bought machinery and other assets from Lordstown.) Lordstown declined to comment.

Burns said in an email that he never inflated the orders and noted that a study by an outside law firm had found inaccuracies in the Hindenburg report. He bought Lordstown's assets and hired some of the company's engineers, Burns said, because he believes the company has unique technology.

“Under the LandX brand, we intend to build several interesting vehicles and hope to announce our full lineup soon,” Burns said.

Short sellers have also targeted Faraday Future, a Los Angeles-based company that has so far delivered nine of its “ultra luxury” electric vehicles after a decade in business.

After J Capital Research, another short seller, published a report on Faraday in 2021, the company admitted that it had misled investors by claiming it had 14,000 reserves that were actually unpaid expressions of interest.

In September, Faraday said in a regulatory filing that its “corporate culture did not sufficiently prioritize compliance.” The company has also revealed that it is under investigation by the Securities and Exchange Commission and the Department of Justice.

Faraday is cooperating with authorities, a spokesperson said in an email, adding that the company has “made substantial changes and improvements to processes and procedures to strengthen our governance and internal controls.”

Even for companies that short sellers have not publicly accused of exaggerating their achievements and prospects, producing vehicles has proven incredibly challenging.

Canoo has announced orders worth $750 million from Walmart and other customers for its electric vans. The company is ramping up production at a factory in Oklahoma, a spokesman said, but declined to say when it would begin delivering vehicles in large quantities.

Canoo told investors in November that there was “substantial doubt” it would survive. Although accounting rules required the warning, Canoo has raised $380 million to finance its expansion, said Chris Nguyen, the spokesman.

Investors have become skeptical even of companies that have managed to produce thousands of cars. Shares of Fisker, which delivered about 3,000 vehicles through early November, have fallen 95 percent from a high set in 2021. Shares of Lucid, which has said it will produce at least 8,000 luxury electric sedans this year, have down 93 percent. Shares of Rivian, a maker of electric trucks and sport utility vehicles that many analysts consider the startup most likely to survive, are down 80 percent.

Less sophisticated investors were often hit hardest by losses. Milton, prosecutors said in a sentencing memorandum, “engaged in a sustained scheme to take advantage of non-professional individual investors.” That included posting a video on YouTube of a prototype rolling down a hill, creating the false impression that the company had a working vehicle.

Milton also lied about his personal history, prosecutors said. He had said that he dropped out of college to pursue his entrepreneurial dreams even though he was expelled for paying someone to do his academic work.

After selling some of his Nikola shares for $100 million in mid-2020, Milton spent $83.5 million on luxuries like a plane and a property in the Turks and Caicos Islands.

Nikola investors lost more than $660 million, prosecutors said in the memo. Nikola's shares “became effectively worthless once the truth came out.”

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