Last Friday, when a $349 billion emergency loan program authorized by Congress to save America’s small businesses from the coronavirus ran dry, mom-and-pop businesses across the country threw their arms up in the air: Though they were quickly running out of cash, their requests for loans weren’t met
Instead, a stream of financial disclosures made by over a hundred companies showed that over $500 million in cash went to publicly-traded corporations, some with valuations in the billions and with hundreds of millions of dollars in annual revenues. In the aftermath, came a public backlash.
Senator Marco Rubio and Treasury Secretary Steven Mnuchin warned of “severe consequences” for recipients taking loans in violation of the rescue program’s certifications about being a small business. Large restaurant chains like Shake Shack, Ruth’s Chris and Kura Sushi quickly returned their small business rescue cash
But there are some prominent holdouts.
Trevor Milton, the billionaire founder of hydrogen truck unicorn Nikola Motor Co., isn’t prepared to return his company’s $4.1 million loan, first reported by Forbes. The loan was made by JPMorgan Chase as part of the Small Business Administration’s Paycheck Protection Program, aimed at helping small businesses survive the pandemic.
“I wish I could see into the future about how long the virus shutdown will affect us for. Right now, it has been a huge help to cover the two months of payroll with the PPP,” Milton tells Forbes by email.
It’s been a busy 12-months for Milton’s company, which has raised hundreds of millions of dollars in capital at a multi-billion dollar private valuation. The capital raises made Milton a billionaire based on the value of his stake in the company. Just before the coronavirus, Nikola Motor Co. struck a merger with a publicly traded acquisition vehicle called VectoIQ. The deal valued the startup at $3.3 billion and also included a $525 million capital raise from blue chip investors including Fidelity and hedge fund ValueAct Capital.
The sheer size of Nikola’s private valuation and its gargantuan capital raise made Forbes question its need for funds earmarked to help small businesses like bars, restaurants and dry cleaners manage past the current economic shutdown.
On Monday, Nikola Motors chief financial officer Kim Brady told Forbes the company needed the rescue cash as a bridge to retain its workers while its giant merger closes.
“There’s a difference between a high valuation and having cash,” Brady said in a telephone interview. “We are a pre-revenue company with a lot of expenses… Our burn rate is high.”
Brady also made clear that Nikola Motors believes it is the type of company that the government’s rescue funds are supposed to help.
Despite its high valuation, Nikola has a small staff of about 300 workers, many of them skilled and highly paid engineers, but it doesn’t yet generate substantial revenue revenue. Since PPP funds will be used to retain staff, Brady said the lifeline follows the spirit of the Act. “We’re preserving high paying jobs,” he claimed.
In a CNBC interview on Friday afternoon, Milton reiterated the point. However, he indicates to Forbes he’s undecided about whether the company will eventually repay the loan, or return the cash.
“There are hundreds of variables that will affect our decision on that,” says Milton in an email exchange. “I’d love to know how long the state and government shut down will go on for. How long until we can internationally travel to open up our factory in Ulm Germany that we just started retrofitting for the battery electric Nikola Tre. How long state to state borders will be closed, when can we start work on our USA facilities, how many people we help keep employed and how many we hire with the PPP funds.”
That Nikola Motors needs PPP cash underscores just how costly Milton’s hydrogen truck vision is. Nikola is hoping to build hydrogen trucks for long-haul routes that can be economically competitive with electric trucks being unveiled by companies like Tesla. It will also make electric-powered trucks for shorter routes, Forbes’ Alan Ohnsman reported in a September feature.
He wrote: “From a Phoenix headquarters that will also build prototype semis, Milton has raised more than $500 million from such investors as European heavy-duty vehicle maker CNH Industrial, manufacturing and tech giant Bosch, hedge fund ValueAct, South Korea’s solar powerhouse Hanwha, Norwegian energy company Nel Hydrogen and Worthington Industries, a metals manufacturer. He needs at least $1 billion to build a factory in Coolidge, Arizona, put the first trucks on the road and open ten fueling stations in California and Arizona.”
That month, Nikola raised $250 million, including $100 million in cash and $150 in services, adding to the $265 million the company had already raised. In November, the Wall Street Journal reported Milton paid $32 million for a 2,000 acre ranch in Utah. And in March, Milton struck his biggest deal yet for Nikola, inking a merger that makes his company poised to hit public stock markets with over half a billion dollars in the bank.
Despite the grandeur of his dreams, Milton now says coronavirus has put Nikola in tenuous financial condition.
“Keeping my employees paid so they can pay their mortgages is priority number one,” he says.