The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, Feb 19 (Reuters Breakingviews) - A much-hyped stock market debut, a devastating short-seller report, a founder sentenced to prison, a scrapped $2 billion lifeline, and now bankruptcy. So went the nearly five years that Nikola NKLA.O spent in the public markets. The maker of electric- and hydrogen-powered trucks led a wave of enthusiasm for clean-economy companies that promised transformational if hard-to-gauge pay-offs to investors at the cost of enormous up-front investment. That difficult combination was a perfect fit for the frenzy of special-purpose acquisition companies (SPACs) looking for something to buy. The subsequent busts show why the more traditional route to stock market listings serves a purpose after all.

Nikola was one of the earliest zero-emissions vehicle makers to engineer a listing by combining with a blank-check firm. After the merger closed in June 2020, its market value shot up to $26 billion. A post-pandemic boom in SPAC deals offered a route to public markets for companies that might ordinarily have met skepticism from equity investors. Peers like Lordstown Motors, Canoo, Fisker Automotive, Arrival, Electric Last Mile Solutions, and Proterra followed.

Following Nikola’s Wednesday announcement that it had filed for Chapter 11, every single one of those companies has gone bankrupt. It’s not necessarily the end of the road: Lordstown has emerged as Nu Ride NRDE.PK, and Nikola had begun exploring a sale before seeking protection from creditors. SPAC user Lucid LCID.O continues to hang on with a market capitalization of $10 billion. Investors fret that public markets have become too daunting for new companies: Apollo Global Management notes that the number of listed U.S. companies has halved since the mid-1990s. But the bankruptcy pile-up is a reminder that the more arduous path to a conventional initial public offering weeds out less robust companies.

The issue is one of preparation. Unlike market leader Tesla TSLA.O – which had delivered 1,650 Roadsters by the time of its 2010 IPO – the SPAC wave thrust companies onto the market which had yet to prove their product. Nikola’s honeymoon was especially brief: three months after its debut, short-seller Hindenburg Research published a takedown with the famous accusation that a video of a truck in motion was created by rolling it down a hill.

Founder and former boss Trevor Milton was ultimately convicted of securities fraud. Automaking stalwart General Motors GM.N pulled back from a $2 billion partnership. The few analysts covering the company expect around $100 million in revenue for 2024, according to Visible Alpha, a fraction of the $3.2 billion the company once forecast.

Companies that opt for traditional IPOs can also steer off course: Rivian Automotive RIVN.O chose the conventional route in 2021 only to watch its shares tumble 89%. But the $15 billion company is, crucially, still delivering vehicles to buyers. Rivals that took the SPAC short-cut have a far weaker record.

Follow @JMAGuilford on X

CONTEXT NEWS

Nikola announced on February 19 that it had filed for Chapter 11 bankruptcy protection and intends to pursue a sale process for its assets.

The maker of electric and fuel cell-powered trucks went public in 2020 through a merger with a special-purpose acquisition company.

(Editing by Peter Thal Larsen and Streisand Neto)

((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))