Hacker News Reader

Comment by rewtraw | Hacker News Reader

How does a huge corporation like GM end up partnering with such an obvious scam, especially post-Theranos? Where is the due-diligence? I saw NKLA stock skyrocketing, and spent 5 minutes researching the company to find out why, and all I found were massive red flags... how did GM miss them?

View on HN

It was such a good deal for GM that it didn't matter. They got 11% of Nikola, which they can start selling off after a year. And that was just to allow Nikola access to their IP, which GM wanted to develop and test anyways. I imagine they got such great terms because Nikola has absolutely nothing working in-house.

11% of 0 is 0. This simply solidifies the idea that GM is led by out of touch legacy management. "We were supposed to check they only rolled the truck down a hill?"

Say what you will about Musk and Tesla (I know, I know), but their Class 8 Semi did a nationwide tour (under its own power) to potential customers [1] and also occasionally pitches in to perform vehicle deliveries [2], no downhill coasting required.

[1] https://electrek.co/2018/08/25/tesla-semi-drove-across-count...

[2] https://electrek.co/2020/06/26/tesla-semi-spotted-used-deliv...

Not really. They can probably sell it at a loss and recover it all back in tax breaks.

In addition to the 11%, GM is also slated to earn up to 700 million dollars in cash.

More specifically was slated to earn 700 million, if the Nikola ponzi had been able to slip under the radar and continue. I'm absolutely sure NKLA does not have 0.7 billion lying around in cash, those are new investment that they need to raise. Fake it till you make it, they say.

In the current situation, all investors will require substantial proof of working technology. No working tech, no new investment, the company will probably fold before paying back a cent to GM.

As of their last earnings report Nikola had almost exactly $700M in cash / cash equivalents. Maybe GM just wants that :)

That's interesting. Without any product, what exactly are those sources of cash earnings?

Reverse merger with a SPAC investment vehicle. They're not earnings, they're investor funds.

https://www.businessinsider.com/spac-biggest-blank-check-dea...

They need that for the next 3 years where they will not make money.

They probably can sell calls against those shares, basically getting risk-free money regardless of NKLA price in future.

Doubt it because if it got exercised they would be selling their stock. Otherwise, they just be able to sell daily calls at 1 cent below the price for no premium and watch it exercise and thus liquidating the stock they are supposed to hold onto.

If GM didn't know they rolled it down a hill then it sounds like people are going to jail.

> It was such a good deal for GM that it didn't matter.

Exactly. There is literally no downside for GM.

If it's a total scam and falls apart tomorrow, well - they didn't pay any money for the deal (aside from lawyer time). Oh well.

If they can sell off their stock grant, that's free money.

If they can actually make parts/vehicles for Nikola, that's even more money.

Every engineer that works on working with Nikola is not working on trying to catch up in EV.

When it was just Tesla it was fine for them to be bad at making EV. Now that VW and others are starting to get serious, they really need to make something happen.

Until they get sued. Many of the people who made money of Madoff had to return the money they gained.

You're saying an investor (GM) can be held liable for what the limited liability corporation (Nikolai) did?

In some cases, yes.

>> You're saying an investor (GM) can be held liable for what the limited liability corporation (Nikolai) did?

> In some cases, yes.

Now I'm curious. Can you give an example?

This[1] is a pretty good overview to piercing the corporate veil. I suppose it's technically possible for a company to be liable for what a company they invest in does, but there would have to be some pretty weird circumstances (for example, if the two companies had substantially co-mingled finances and leadership).

I don't see any of it applying to the GM/Nikola deal.

___

1. https://www.nolo.com/legal-encyclopedia/personal-liability-p...

Not necessarily held liable, but they'd probably have to return the money if it was earned from illegal activity.

Exactly. There is literally no downside for GM.

We're going to find out over the next few weeks that isn't the case. There is tremendous reputational risk here. This episode could throw into question EV capabilities for GM for years to come.

Don't be surprised to see heads roll all the way up in the C-suite at GM over this.

Reputational risk among who? The upper middle class people who poo-poo anyone who doesn't drive a Toyota or Tesla product?

Nobody else is paying serious attention to the R&D ventures of the big automakers or at least if they are they aren't using it to influence purchasing decisions.

Seriously, this is auto/tech nerd news which is read by a sliver of car buyers. Folks will stroll into the dealership they bought their last GM 15 years ago and say ‘gee maybe ill give electric a shot for these lease terms considering my use lately.’

They've rented out their reputation to further this scam. That reputation is now damaged.

Perhaps, but it's hard to imagine a typical GM customer giving a damn about this investment.

Great call. See:

https://news.ycombinator.com/item?id=24483980

GM only stood to benefit, with the exception of tarnishing their brand and trust even more.

Walgreens, Safeway, and cleveland clinic partnered with Theranos. Cleveland Clinic is supposed to be one of the best hospitals in the world.

The Cleveland Clinic is only the "best" because of marketing. Think about it. Are the best and brightest REALLY clamoring live indefinitely Cleveland? Yeah right.

The best hospitals are likely in California. Doctors want to work in California so bad that they actually take LESS money. It's called the sunshine tax.

It was a PR move. All major business websites had a story about the news. They would have preferred that this didn't come out and NKLA was able to create a real company, but it isn't like they shut down all their factories in anticipation of NKLA making all the GM cars.

Wouldn't be their first time. Previously it was Envia Systems promising a 400Wh/kg battery years before this was on anyone's roadmap.

Of course it turned out to be a scam.

Did GM pay Nikola cash for its investment? Or is it offsets against e.g. purchases of GM batteries?

The latter. Hence it's basically zero risk for GM. If Nikola is real, then the deal is good. If Nikola is a fraud, then it's not like GM wasn't going to do R&D on battery tech anyway.

The same way countless business, government, and philanthropic leaders were all duped by Theranos.

Group think and greed are powerful drugs for those unable to perform their own critical thinking/research.

This sort of thing is (from my limited experience) incredibly common in the start up space.

Nikola, essentially, paid someone at GM in exchange for the deal.

If you read to the end of the article it addresses the GM deal. GM will use its own battery tech. Nikola is basically just sales/marketing. The deal still makes absolutely no sense, but GM isn't dependent on Nikola having working tech or not.

It might actually make sense for GM. GM is building the vehicles using their own tech/plants (presumably not at a loss) and for doing so, is getting Nikola stock.

If Nikola is an unexpected success, then they have a significant stake in it, and if they fail, then hopefully they don't have too many vehicles that Nikola hasn't paid for.

It wouldn't be the first time GM used a "sock puppet" (loosely defined) to escape its own reputation. [0]

[0]: https://en.m.wikipedia.org/wiki/Saturn_Corporation

It's baffling. Like you said, GM will use its own technology. So they bought 11% of Nikola for…edgy CEO shitposting on Twitter?

GM can definitely build a good electric vehicle. They cannot seem to market a good electric vehicle—see Chevrolet Bolt sales, and then ask a random person if they know what a Bolt is. So the Nikola investment is the equivalent of buying a hip design studio?

They didn't buy any stock. GM gets 11% in return for supplying and R&D for the Nikola "car". But they didn't spend any cash, and in fact get cash because they can reimburse 700M.

In the worst case, they were paid to do their own R&D.

Nikola basically bribed GM with a insane deal so they can say they have a GM partnership.

Even better, remember the EV1?

https://en.wikipedia.org/wiki/General_Motors_EV1

Nikola did have a pleasing exterior design for the pickup and a solid email list of potential buyers. Not worth a fortune, but something.

Reply on news.ycombinator.com