Shorting Nikola Corp.: A Cautionary Tale of Fraud, Delisting, and Investor Distrust

The collapse of Nikola Corp. (NASDAQ:NKLA) stands as a stark reminder of how systemic fraud can erode investor confidence and render a stock nearly worthless. Trevor Milton, the charismatic founder and former CEO, once pitched Nikola as a revolutionary force in clean energy transportation. But the U.S. Securities and Exchange Commission (SEC) and a federal jury painted a far darker picture: a company built on lies, misrepresentation, and a calculated campaign to deceive retail and institutional investors alike.

The Fraud That Unraveled a $34 Billion Empire

Milton's fraud was not a single misstep but a pattern of deliberate deceit. The SEC's 2025 complaint detailed how he misrepresented key aspects of Nikola's business:
- The “Nikola One”: Milton claimed the company had developed a fully functional hydrogen-powered semi-truck prototype. In reality, the vehicle was a shell, lacking gears, motors, and a working control system.
- The “Badger” Pickup: Promoted as a proprietary electric-vehicle innovation, the Badger was built using donor parts from Ford F-150s and lacked critical safety features like airbags.
- Hydrogen Production: Milton falsely claimed Nikola could produce hydrogen at $2 per kilogram, when the company had not produced any hydrogen and was purchasing it at $16 per kilogram.

These lies were amplified through social media, where Milton cultivated a cult-like following among retail investors. His tweets and appearances on platforms like Twitter became the primary source of “truth” for many, despite the lack of third-party verification. The SEC noted that Milton's audience—often less experienced investors—was particularly vulnerable to his messaging.

Investor Confidence: A House of Cards

The fallout from these deceptions was swift and severe. By 2023, Nikola's stock had plummeted by -78.12% year-over-year, and by 2024, it fell another -59.50%. The final blow came in 2025, when the company filed for Chapter 11 bankruptcy and voluntarily delisted from Nasdaq. As of July 2025, Nikola's stock trades at a nominal price of $0.05, with a market cap of $4.22 million—down from a peak of $34 billion in 2021.

The erosion of trust was compounded by Milton's 2022 conviction for securities and wire fraud, followed by his 2025 pardon by former President Donald Trump. While the pardon may have exonerated Milton personally, it did little to restore credibility to Nikola. The company's restructuring efforts, including the sale of its Arizona factory to Lucid Motors, have further marginalized its role as a player in the EV sector.

Shorting Nikola: A High-Risk, High-Reward Proposition

For short sellers, Nikola's collapse presents both opportunity and peril. As of July 2025, the stock has a short interest of 19.96 million shares, representing 24.35% of its float. This is significantly higher than competitors like Tesla (0.00%) and Ford (4.44%), indicating sustained bearish sentiment. However, the short interest ratio of 1.0 suggests that covering positions would take just one trading day, reducing the risk of a short squeeze.

Institutional short positions, held by firms like Jane Street Group and Nomura Holdings, add another layer of complexity. Short borrow fee rates have hovered around 6.78% annually, reflecting the cost of securing shares to short. While these rates are high, they also indicate limited availability of shares for shorting, which could limit further downside.

The Risks of Shorting in a Delisted Market

Despite the apparent case for shorting Nikola, several red flags persist:
1. Legal and Regulatory Uncertainty: Nikola's Chapter 11 proceedings are ongoing, and its eventual restructuring could introduce unexpected volatility.
2. Retail Investor Sentiment: While most retail investors have abandoned the stock, a small but vocal minority remains bullish, potentially driving niche buying activity.
3. Market Liquidity: With only 81.96 million shares in float and minimal analyst coverage, liquidity is a concern. A sudden influx of buyers—such as a new investor or activist fund—could temporarily inflate the price.

Investment Advice: Proceed with Caution

For investors considering shorting Nikola, the key is to balance the company's dire fundamentals with the risks of a low-probability rebound. Given Nikola's delisting, bankruptcy, and the absence of meaningful revenue streams, the stock is a speculative bet at best. However, the high short interest and weak financials (a P/E ratio of -0.01 and a P/B ratio of 0.00) suggest the stock has little intrinsic value.

Recommendations:
- For Aggressive Short Sellers: Use limit orders to enter at $0.10 or below, with a target of $0.01. Given the stock's current trajectory, a 90% decline over the next 12 months is plausible.
- For Conservative Investors: Avoid shorting Nikola outright. Instead, consider hedging against broader EV sector risks by shorting a basket of peers with stronger fundamentals.
- For Long-Term Investors: Nikola's prospects are tied to its ability to restructure and pivot to a viable business model. Until that clarity emerges, the stock is a high-risk, low-reward proposition.

In the end, Nikola's story is a cautionary tale for investors and short sellers alike. The company's collapse underscores the importance of due diligence and the dangers of relying on unverified claims—no matter how charismatic the speaker. For those willing to bet against Nikola, the risks are clear, but so too is the potential for outsized gains in a stock that has already lost nearly all of its value.

As the market waits for Nikola's next move, one thing is certain: the road ahead for this once-celebrated EV startup is anything but smooth.