General Motors (NYSE: GM) announces acquisition of an equity stake in start-up company Nikola Corp. (NASDAQ: NKLA), thereby reducing a far-reaching manufacturing partnership announced in September and a supply contract to the possible provision of fuel cells in the future. GM CEO Mary Barra and former Nikola CEO Trevor Milton enthusiastically described the $ 2 billion capital commitment on September 8th. GM would receive an 11% stake in Nikola in return for manufacturing the Nikola Badger electric pickup truck. Providing advanced battery and fuel cell technology to Nikola’s heavy trucks would be worth another $ 2 billion. On Monday, the two companies announced in separate press releases that they had signed a non-binding letter of intent for GM to supply Hydrotec fuel cells to Nikola. The two companies will also talk about Nikola using GM’s Ultimum battery technology. “Without the stock swap, what GM is really saying is essentially, ‘I’m not going to help you,'” said Michael Ramsey, a vice president of Gartner Inc., a company specializing in smart mobility and automotive development. The lack of a manufacturing agreement means the end of the roof. Nikola CEO Mark Russell said the badger would only move forward if Nikola had a manufacturing partner. The company will refund the down payments made for the truck, which were only shown in photos. “I thought the badger was a distraction from what should be their core business,” Sam Abuelsamid, senior analyst at Guidehouse, told FreightWaves, “the only reason the badger existed was to get more hype for Nikola too and make sure they are seen in the same area as Tesla. Trevor Milton wanted to be seen as the next Elon Musk ”.
Too high a price
GM would have received more than 47 million shares in Nikola at a price of $ 41.93 per share. Nikola shares traded at $ 21.23 at 1:48 p.m. on Monday, a decline of nearly 24%. “GM clearly decided that the price they were effectively paying for this stake in Nikola was too high,” said Abuelsamid. As talks about the deal originally scheduled for September 30th dragged on, GM officials spoke favorably of a possible deal. Nikola was less optimistic and described GM technology as a secondary source for Nikola’s trucks. “When Nikola shares plummeted, GM wanted more shares,” said Abuelsamid, “the value of GM’s development and manufacturing resources did not change. Cowen & Co. analyst Jeffrey Osborne described the stock business as a giveaway. “GM never bought about $ 2 billion worth of shares,” he said, “they got them for free under the previously proposed deal.
The deal began to break up after the short seller Hindenburg Research devastated Nikola on September 10th. In a 67-page report, Hindenburg said Nikola was built on a web of lies and deceit, with his technological prowess being overrated. The setback from the allegations resulted in Milton stepping down from his position as executive chairman and vacating his seat on the board on September 20. The US Department of Justice and the US Securities and Exchange Commission are investigating the Hindenburg allegations. Both have cited Milton and the current Nikola executives, according to Nikola’s quarterly filing with the SEC. “It’s a face-saving move for GM to keep its distance from a company that might be speculative,” said Ramsey.
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A new focus
Without the badger, Nikola can concentrate on his battery-electric and hydrogen-fuel cell-powered trucks of class 7 and 8. The first of these, the battery-electric Tre cab, will be assembled in Ulm, Germany, in 2021 in a joint venture with CNH Industrial NV (NYSE: CNHI) subsidiary Iveco. Robert Bosch will supply fuel cells for Nikola trucks in Europe. Under GM’s original deal, Nikola would have spent $ 700 million to cover the cost of making 50,000 badgers a year. Fuel cell truck production is planned for 2023 at a plant Nikola is building in Coolidge, Arizona. A decision has yet to be made on the procurement of fuel cells for trucks built in Arizona. At the same time, Nikola is planning a network of hydrogen filling stations. The company said it was well on its way to finding a partner for at least some aspects of the gas stations before the end of the year. “For this company, their primary goal should be to produce the heavy trucks, which was the original idea for the company and the associated infrastructure,” said Ramsey.
Bulls and bears
On Wall Street, two analysts covering Nikola were at odds over what the downsized GM deal meant. JP Morgan analyst Paul Coster maintains an overweight position in the stock. “We think this is a positive outcome for Nikola in the medium to long term as the company is now focused on the core initiative for Class 8 trucks and the distractions associated with the badger and [Investitionsausgaben] can avoid, ”Coster said in an investor note. While Nikola would pay “cost-plus” for GM’s fuel cell technology, GM would likely do the research and development to adapt its technology to large trucks instead of cars and SUVs, Coster said. Wedbush Securities analyst Dan Ives takes a negative outlook. “This has gone from a landmark deal for Nikola to a good delivery partnership but nothing to write home about,” he said, “and the street will be disappointed accordingly, along with ongoing lockup concerns.” The “lockup worries” concern 161 million shares – about 46% of all shares – that can be freely sold by early investors on Tuesday. Approximately 91.6 million of these shares are held by Milton. If he sells a significant part or all of his stock, the resulting flood of available stocks could drive the stock price down.
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