What the Hell, Wall Street?

Money might never sleep, but Wall Street never seems to learn.

We all remember those stories from a few years ago about Tesla being overvalued by investors. Hell, a quick Google shows me there are opinion pieces on that topic from just a few months ago.

Now comes Nikola.

The Phoenix-based startup has done, well, next to nothing (sub. required) and yet it has a valuation that’s jaw-dropping, all because some folks see it as the next Tesla.

Indeed, the company doesn’t just use the other half of Nikola Tesla’s name, but founder Trevor Milton just had a media meltdown that would make Telsa chief Elon Musk happy.

I don’t want to wade too deeply into Milton’s beef with Bloomberg over this article, but it does appear that Milton doesn’t understand the usage of anonymous sources in journalism, or that the Bloomberg piece gave him a chance, on record, to tell his side of the story.

In brief – anonymous sources from within the company told Bloomberg that Milton made deceptive statements about a prototype truck that suggested it could move under its own power when it couldn’t. Milton tells Bloomberg he never intended to deceive, and was clear about the truck not being drivable.

It’s no scandal for prototype automobiles to be non-running, or barely running. The “legacy” automakers show concepts in those states all the time. The scandal here is that either Milton attempted to deceive the public and investors, or he didn’t but employees thought he did. Furthermore, Milton seems to think Bloomberg wrote a hit piece, which is why he’s threatening to sue over it.

Which, from what I’ve seen, would be a mistake – the Bloomberg story appears to me as being journalistically and legally sound. Suing just because you don’t feel like a story is flattering is a shitty move – although it did (eventually) help Peter Thiel take down Gawker. Even then, specific circumstances in that case prevented the blog from surviving a judgment against it.

Four paragraphs on the Bloomberg piece? Damn, I got more into the weeds than I wanted. Nevertheless, it speaks to a larger point – Wall Street is putting a lot of hopes into small automakers that have almost zero in the way of product and leaders that seem to think attempting to discredit legitimate, accurate, and fair journalism is a great PR strategy (narrator voice: It isn’t).

I get it. Investors see a company they think can “disrupt” an industry, and they believe it will go on to great heights, and they want to get in on the ground floor. Once the hype boosts their stock, they want to keep that value high for obvious reasons. So any real-world facts that poke holes in the bubble are dismissed as being prevented as shorts trying to manipulate the price, or as journalists acting shady to “push a narrative.” Never mind that it’s never really spelled out why a journalist would want to publish inaccurate facts to break the spell.

In Tesla’s case, initial success breaking into a very difficult industry led to over-exuberance. And Musk’s abilities as a pitchman, plus other successes, such as with SpaceX, didn’t hurt. Tesla promised to bring EVs to the masses, and to do the same with autonomous driving, while also revolutionizing the dealership-based sales and service model. Even smaller ideas, like the over-the-air updates, would bring huge, positive changes to a staid automotive industry. Or so the pro-Tesla story goes.

The truth is more nuanced, of course. Tesla has stuck around, which in itself is impressive – most automotive startups fail hard, since building vehicles is crazy expensive and immensely difficult. Not to mention selling and servicing them, once they’re built.

Now, Tesla has four models, but only one is truly “affordable”, and then only in base trim. It’s still a niche automaker, not a full-line one. And while it did some interesting things with the shopping and service process, it didn’t force the rest of the industry to scrap the dealer model, as least not as of yet.

It also needs to be said that while Tesla and the company’s fans love to say it drove innovation from the established automakers, this claim is dubious – the other automakers were already working on EVs, autonomous driving, and things like OTA updates. How much Tesla is responsible for pushing them to develop these features more quickly (or at all), and how much is coincidence, is a question with no easy answer – but it’s not as simple as Tesla types paint it. Hell, GM’s EV1 was part of the inspiration behind the original Tesla Roadster.

Yet, Tesla gets valuations that the rest of the industry doesn’t, despite only selling four cars, most of which are out of the average buyer’s price range. Not to mention that Tesla buyers need access to EV chargers. Or the infrastructure problems plaguing all EVs – range anxiety, charge times, quantity and accessibility of chargers. Those problems will likely be solved someday, perhaps soon, but they aren’t yet. Only now are EV ranges catching up to the low end of what gasoline cars offer.

Telsa has had production problems, too, many of which are likely the growing pains that any automotive startup would face.

Enter Nikola. Just like Tesla, the company is getting investor love on what it MIGHT do, someday. All we know about it so far is that it’s built a prototype big rig, has plans to build a plant and have it operating at full capacity some eight years from now, and it has a rendering of a light-duty pickup truck that it’s hinted it will pair with an existing automaker to build – yet it hasn’t named the automaker or said anything to suggest those plans are concrete and not just hype. Nikola has also had some production challenges, as outlined in the Bloomberg piece.

Meanwhile, Ford might bring in $115 billion of revenue this year, and its market cap has been less than Nikola’s at times during trading.

Insane.

Before you accuse me of being anti-EV, or in the pocket of the legacy OEMs, or a short, or having a financial stake in Ford/GM/FCA/whoever, or a Musk hater for my criticisms of Tesla’s and Nikola’s valuations, let me assure you I am not any of those things.

I think EVs will someday be the lion’s share of the fleet, with the internal combustion engine relegated to some sporting and utility vehicles. I have no beef with Musk, despite being critical of him in these pages – I was hard on him when I thought it necessary, but I cover Musk and Tesla fairly, as does TTAC, and I’ll give credit when it’s due.

Nor do I have a financial stake in this, to my knowledge – it would be a conflict of interest for an auto journalist to knowingly own stock in an OEM, and while I have a 401K and other retirement accounts like everyone else, I do not know which companies I have stake in.

I just have this old-school belief that companies should earn investors’ trust with successful products and business plans, as opposed to hype from a pitchman CEO and products that look good on paper but barely exist in the real world.

I’m sure any day traders reading this will tell me I’m naïve, because even if you don’t believe Tesla and Nikola will be the successes that the valuations suggest, you can probably make money off them somehow. I don’t know much about the stock market, but I’m sure there’s money to be made no matter what happens.

That said, I don’t fully get the logic behind those investors who are true believers. I can understand trying to cash out while the price is still high, should the bottom fall out, but the folks who really think that Tesla and Nikola will deliver on promises of revolutionary disruption five or 10 years from now strike me as quite irrational. Whether they hold stock, drive a Model S, or merely root for the brand’s success out of some sense of brand loyalty.

Tesla may yet be a full-line make that will compete with GM and the rest on the same level. Nikola could beat out Daimler and others to produce a zero-emission hydrogen fuel cell semi-truck.

Yet, for now, one company is a niche player, despite all the attention it gets paid, and the other is a startup that’s just now, well, starting up.

Maybe Wall Street needs to sober up.

[Image: Nikola]