The Same Lesson From Both Nikola Motors And Theranos: Pop The Hood

Tuesday, September 14, 2021

#Management Consulting    #Automotive    #innovation

The criminal trial of Elizabeth Holmes, the former founder and CEO of Theranos, started yesterday in San Jose, California. The trial of Trevor Milton, the former founder and CEO of Nikola Motors, awaits its time in court, likely in the coming weeks or months. The two stories have eerily similar crescendos that are culminating in court proceedings at nearly identical times. And both have the same lesson for investors: look under the hood before writing any large checks.

 The Story of Nikola Corporation

If you haven’t heard of this clean-energy, mobility start-up, you might be shocked to hear that in 2020 it was briefly valuated higher than Ford Motor Company F +2.4% despite still-to-this-day never having delivered to market a production vehicle (*the first vehicles are projected in the coming months). It was heralded – like multiple other start-ups – as the Tesla TSLA +0.9%-killer, which was seemingly intentional as a zero-emission company using the first name of Nikola Tesla.

Its founder, Trevor Milton, was described within the indictment as a “serial entrepreneur with no formal background in engineering” and born in the western American town of Layton, Utah, approximately 700 miles from Silicon Valley. He personifies a charismatic leader, and just before his incarceration (at age 38) he appeared to be sitting atop the world: an initial public offering in June of 2020 supported by an 11% acquisition-slash-partnership with General Motors GM +2.7% including an 11% stake at a price tag of nearly $2 billion. All of this was fueled – or maybe more aptly unfueled – by a promotional video of a pre-production, supposedly hydrogen-powered truck driving majestically across a western U.S. highway. Life was grand.

But two days after the announced General Motors deal, Hindenburg Research released a report entitled “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America.” Amongst the allegations in the report was Nikola Motors supposed deceit intended to bolster the stock price, including details of how employees pushed that majestic truck to the top of a long, steep hill and rolled the inoperative, shell-of-a-vehicle down the grade for visual effect.

Four days after the report, the Securities and Exchange Commission (SEC) and United States Department of Justice (DOJ) started investigations into securities fraud by both Milton and Nikola. Another six days later, he resigned after tweeting “Cowards run, leaders stay and fight.” Meanwhile, September 2020 also brought accusations from his cousin and a second woman of sexual assault including misconduct at his own grandfather’s funeral.


Two months ago, Milton was indicted on three counts of criminal fraud and two counts of securities fraud by a U.S. federal grand jury including “lying about nearly all aspects of the business.” He has denied the charges, released on a $100 million bail and ordered to remain at one of his two properties in Utah, one of which was appraised at $36 million.

The Similarities to Theranos

This week, Elizabeth Holmes faces two counts of conspiracy and nine counts of wire fraud brought against her by a U.S. federal grand jury as the founder and former CEO of Theranos, a Silicon Valley darling that promised to revolutionize health care. Holmes, too, was a charismatic leader who at the peak of Theranos’s $9 billion valuation was 31 years old, and three years later was indicted.

As documented well in the 2019 HBO documentary The Inventor: Out for Blood in Silicon Valley, Holmes like Milton supposedly perfected the art of “fake it until you make it” and, in both cases, the dishonesty centered around inoperative technology named after a famous scientist. For Theranos, the revolutionary product was a blood sampling machine called Edison that could reside at drug stores, autonomously sample a customer’s blood, and provide quick results. Holmes was also able to secure significant funding based upon hype with supposedly $92 million in funding by the end of 2010 and a partnership with Walgreens WBA -0.5% in 2013.

The downfall of Holmes and Theranos was similarly rapid, albeit not contained to a single September like Milton. From June to October of 2015, The Wall Street Journal (WSJ) investigated a tip regarding suspicion of the technology’s fidelity and, after a few whistleblowers’ documents, the WSJ published the blockbuster article uncovering the web of lies. By January 2016, the Centers of Medicare and Medicaid Services (CMS) warned Theranos of irregularities and then by July banned Holmes from “… owning, operating or directing a blood-testing service for a period of two (2) years.” Twenty months later, the SEC charged Holmes and the former president, Ramesh Balwani, with fraud to the tune of $700 million. Five months later in September 2018, the company began formally dissolving.

Looking Under The Hood

One might say the “lesson learned” in both stories is to invest a little time and money into investigating a company before buying, merging, acquiring, or partnering. What engineering analysis did General Motors perform before plunking two billion dollars down? A thorough, third-party assessment by experts familiar with engineering development should have uncovered egregious problems such as a non-working engine and, even if conducted over multiple projects and areas, would’ve been $50k-100k over a few weeks. Why didn’t Walgreens request an objective evaluation of the rigor behind the Edison technology. Such assessments are commonplace for large corporations. Yes, some of Nikola’s strategy was to target Robinhood investors – many of whom are household day traders who could not afford such an investigation – but the big boys should’ve done their homework.

However, saying “lesson learned” assumes the latter learning, which does not appear to be accurate. In March of 2021, Hindenburg Research published another report about supposed fraud and misleading investors, but this time about Lordstown Motors, a start-up founded in 2018 by Steve Burns. Amongst the claims by the report, Lordstown supposedly misled investors that pre-production engineering and testing was 3-4 years away from production-ready with multiple, ongoing testing problems.” Did General Motors (once again) require an assessment before underwriting $40 million of Lordstown Motors’s loan for purchasing the plant in Ohio? Did DiamondPeak Holdings investigate the engineering rigor before its merger with Lordstown? And what about many of the start-ups during the crash? It seems the same theme plays out repeatedly: a young, slick entrepreneur tells a beanstalk tale and gets the greedy, overly-enthusiastic investors to jump without looking.

Maybe as these cautionary tales approach their conclusion, the financiers of the world will recalibrate on the necessary rigor before a significant investment.

Or maybe Proverbs 21:20 foretold two thousand years in advance: “A fool and his money are soon parted.”

This article was originally published by Steve Tengler ( on on September 1, 2021



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