EV manufacturer Nikola files for bankruptcy and sells assets due to a negative cash burn

Nikola (NKLA.O), the newest electric vehicle manufacturer to falter due to weak demand, high capital burn, and funding issues, announced on Wednesday that it has filed for Chapter 11 bankruptcy protection and will seek a sale of its assets.

The news marks the conclusion of a difficult journey that includes accusations of short-selling, a decline in share value, and multiple leadership changes.

EV companies like Fisker, Proterra, and Lordstown Motors, who went public during the epidemic with the goal of revolutionizing the industry, have declared bankruptcy in recent years as funding for their capital-intensive operations dried up because of high borrowing rates and waning demand.

“Like other companies in the electric vehicle industry, we have faced various market and macroeconomic factors that have impacted our ability to operate,” Steve Girsky, our CEO, said in a statement.

“Unfortunately, our very best efforts have not been enough to overcome these significant challenges,” he stated.

Despite discounts and offers, Elon Musk’s electric vehicle (EV) pioneer Tesla (TSLA.O) recorded its first annual sales decline in 2024 as demand was hampered by an older lineup and high borrowing rates.

Nikola, which began producing battery-powered semi-trucks before switching to hydrogen-powered electric trucks, said it made the decision to commence the asset sale process in order to optimize value and guarantee a smooth wind-down.

Through the end of March, the company will continue to run some field operations for trucks and some hydrogen-fueling activities.

According to a court filing, Nikola assessed its obligations to be between $1 billion and $10 billion, while listing assets of between $500 million and $1 billion.

Based in Phoenix, Arizona Nikola was established about ten years ago. In June 2020, it became public, and the following December, it delivered its first car.

Due to the high cost of borrowing, fleet operators were hesitant to engage in the adoption of electric trucks, thus Nikola increased production of its hydrogen-powered trucks in 2024 but still lost hundreds of thousands of dollars on each vehicle sold.

On Wednesday before the market opened, the stock dropped around 45% to about 41 cents.

Having financial difficulties

Due to supply chain issues, Nikola found it difficult to boost its production rate in the early stages of the epidemic. Its problems were made worse by high expenses associated with the manufacturing ramp-up.

By the end of September, Nikola’s cash and cash equivalents had fallen to $198.3 million from $464.7 million at the end of 2023.

The business announced on Wednesday that it had $47 million in cash on hand and was starting Chapter 11 procedures.

The value of its shares has dropped by over 99% since they went public in 2020.

The company used a reverse stock split last year to adhere to Nasdaq’s listing requirements after the shares repeatedly dropped below the $1 threshold.

SHORT-SELLER CHARACTERISTICS

Short-seller Hindenburg, which dissolved earlier this year, released a damning report on the company shortly after it went public in 2020 through a merger with a blank-check company. Nikola had refuted the accusations.

According to the report, Nikola allegedly misled investors by rolling one of its trucks down a hill while pretending it was a working vehicle that could operate on its own.

Trevor Milton, the founder, was found guilty of fraud in 2022 and given a four-year prison sentence the following year.