Nikola, the electric car manufacturer, joins the long list of companies that have filed for bankruptcy in recent months, after announcing on Wednesday that it has sought Chapter 11 protection under U.S. Bankruptcy Law.
Why did Nikola file for bankruptcy?
According to the company, the bankruptcy filing is due to the market being affected by the low demand for cars in the United States and Europe.
“Like other companies in the electric vehicle industry, we have faced various macroeconomic and market factors that have impacted our ability to operate,” said Steve Girsky, president and CEO of Nikola, in a statement.
He emphasized that in recent months, the company has taken numerous steps to raise capital, reduce liabilities, and clean up its finances to sustain its operations. However, these efforts have not been enough to overcome the challenges.
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What will happen to Nikola?
After filing for Chapter 11, the company will look to sell all its assets, although it has filed motions with the court to ensure its limited operations can continue during this process to fulfill its obligations to employees.
While the sale process is underway, the electric car manufacturer stated that it has approximately $47 million in cash, which it intends to use to fund its remaining operations and try to emerge from bankruptcy.
Nikola’s stock falls
On Wednesday, the company’s stock fell by 46%, reducing its valuation to less than $40 million. Nikola Corp’s market value had reached $29 billion in the days leading up to its public offering but then experienced a drastic decline, dropping to less than $100 million before filing for bankruptcy.
Who owns Nikola Corp?
The founder is Trevor Milton, but the company’s main shareholders include Susquehanna International Group, LLP, Vanguard Group Inc, Citigroup Inc, BlackRock, Inc., VTSMX – Vanguard Total Stock Market Index Fund Investor Shares, Millennium Management LLC, Cowen and Company, LLC, and Bank of America Corp.
Electric car manufacturers that have filed for bankruptcy
In addition to Nikola Corp, other electric vehicle manufacturers have been unable to weather the crisis and have filed for bankruptcy. These include:
- Fisker
- Proterra
- Lordstown Motors
What is Chapter 11 of the U.S. Bankruptcy Code?
Chapter 11, commonly known as the “reorganization chapter,” allows businesses, partnerships, or individuals to restructure their assets and liabilities appropriately without having to sell off all their assets.
Who can seek protection under Chapter 11?
U.S. law allows any company or individual with a domicile, business establishment, or assets in the country to request judicial supervision to restructure their finances and operations under the provisions of Chapter 11.
There is no minimum or maximum value for the assets of a foreign company in the U.S. to be eligible for Chapter 11 protection under U.S. Bankruptcy Law. In certain cases, deposits held by the legal firm managing the process in the U.S. may be considered assets, making the debtor eligible to seek Chapter 11 protection.
Which U.S. stores could file for bankruptcy in 2025?
Some of the retail chains that could face bankruptcy this year include the following:
- Beyond
- Everlane
- Glossier
- Backcountry
- Madison Reed
- CVS
- Rite Aid
- Advance Auto Parts
- 7-Eleven
- Foot Locker
