Jim Cramer: Investors should still sell Nikola even after its founder's resignation

  • CNBC's Jim Cramer said Tuesday he still did not like Nikola Corporation and advised investors to sell.
  • The embattled electric vehicle company's founder resigned as executive chairman after facing fraud allegations from a short-selling firm. 
  • "Ever since Nikola started trading, I told you there was too much hype and not enough substance to this one," the "Mad Money" host said.

CNBC's Jim Cramer advised investors Tuesday to sell shares of Nikola Corporation, the embattled electric vehicle company that has been the target of a short-selling firm. 

Nikola ended Tuesday's session up 3.4% at $28.51 per share, following a roughly 19% decline one day earlier after the company's founder, Trevor Milton, voluntarily stepped down as executive chairman.

"Even though the stock bounced today on the Milton resignation, I don't like it," the "Mad Money" host said. "Ever since Nikola started trading, I told you there was much too much hype and not enough substance to this one."

Milton's resignation followed accusations from short-selling firm Hindenburg Research, which claimed Nikola made false statements about its technology in order to attract investors and land partnerships with other auto makers, including General Motors. 

The Securities and Exchange Commission and Department of Justice are reportedly looking into the claims that Nikola misled investors.

Nikola has pushed back on Hindenburg's report, claiming it contained "dozens" of inaccurate claims. However, the Phoenix-based company acknowledged one allegation from Hindenburg: that it staged a video that showed a Nikola truck functioning on its own, when in fact the truck wasn't.

Even so, the company's CFO, Kim Brady,  said Tuesday that "nothing has changed" about its mission or its future potential. "We recommend that investors really focus on the future and what we have delivered and what we're going to deliver," she said during a virtual conference. 

Although Hindenburg has a financial incentive at play — by taking out a short position, it is basically betting the stock goes lower — Cramer stressed there is a place for short-selling firms in the market. "I'm not saying that shorts like Hindenburg are always right," said Cramer, noting he likes a company called J2 Global, which also has been a target of the firm. 

"But when a short-seller brings highlights some major red flags, you've got to take it seriously. Even if you ultimately think that they're wrong, you have to contend with their arguments," he said. "In the case of Nikola, the bear case was overwhelming and I'm glad Hindenburg went after them." 

Cramer, a former hedge fund manager, also noted he has been cautious about Nikola for months. "I think that you should stay away. There is much better places for you to put your money," he said on July 22, when the stock closed around $33 per share. It had soared to nearly $94 on June 9. 

And in early August, shortly after Nikola reported its first quarterly results since going public through a reverse merger two months prior, Cramer again raised valuation concerns. "Most of the value here is in the idea, the concept, and that simply can't justify a $25 billion valuation, where Nikola was not long ago … or even a $14 billion valuation where it is right now," he said on Aug. 4. 

On Tuesday, Cramer said he understands investors may be enticed to continuing owning Nikola due to the massive upside for a company that bills itself as one that can revolutionize transportation with its electric-battery and hydrogen-powered trucks. He noted the allure of comparing Nikola to Tesla, the electric vehicle leader. 

"When you see a bunch of bright red flags, you have to sell and sell quickly, even if you still have conviction," Cramer said. "When you're investing, the only thing more important than making money is not losing money. As long as you contain your losses, the gains will take care of themselves," he added.

CNBC's Yun Li contributed to this report. 

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