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Bullish +75

GM strikes partnership with electric vehicle maker Nikola

🤝 General Motors has announced a $2 billion strategic partnership with electric vehicle startup Nikola involving an 11% equity stake.

🏭 GM will engineer and build Nikola's "Badger" hydrogen fuel cell and electric pickup truck, expected to start production by the end of 2022.

🔋 As part of the agreement, GM will supply batteries and its proprietary battery system and hydrogen fuel technology to Nikola.

💰 In exchange for a decade-long contract, GM will receive up to $2 billion worth of newly issued Nikola common stock in three increments through 2025.

📉 The deal positions GM as a potential parts supplier, offering its EV platform and components to other companies like a shift in business model.

🗣️ CEO Mary Barra emphasized the opportunity to leverage their scale for efficiency and stated that their EV technology is attractive to other manufacturers.

🚗 Nikola will handle sales and marketing for the Badger truck while GM's GMC Hummer is scheduled to launch earlier.

📈 Stock prices surged following the announcement, with Nikola shares jumping nearly 50% and GM shares rising nearly 11%.

💼 This partnership follows a recent announcement that GM would partner with Honda to share costs for developing EV and internal combustion engine vehicles.

🏢 GM expects total benefits exceeding $4 billion from this deal, including manufacturing contracts and regulatory credits.

✅ Nikola aims to save over $4 billion in battery and powertrain costs over the next 10 years through this collaboration.

⚠️ Nikola, which is still unprofitable and recently lost $86.6 million in Q2, anticipates significant savings by avoiding factory construction for the Badger.

📢 Analyst Daniel Ives of Wedbush praised the deal as a major step that validates Nikola's technology and ambitions despite previous skepticism.

👨‍💼 Former GM executive Stephen Girsky facilitated the partnership and now serves on Nikola's board after helping to merge it with VectorIQ.

🔄 While GM is building its own electric truck, this alliance allows them to monetize their EV capabilities more quickly than developing solely internally.

Bullish Signals
  • GM announced a major $2 billion strategic partnership with electric vehicle maker Nikola, taking an 11% ownership stake in the company.
  • General Motors will engineer and build Nikola's Badger hydrogen fuel cell pickup truck, expected to enter production by the end of 2022.
  • The agreement is projected to generate more than $4 billion in combined benefits for GM from stock appreciation and manufacturing contracts.
  • GM shares jumped nearly 11% to $33.16 following the announcement, reflecting strong investor sentiment toward the partnership.
  • Nikola stock surged nearly 50% to $53.32, demonstrating significant upside potential for its partners.
  • GM is poised to become a parts supplier and technology leader by sharing its EV platform and battery systems with other companies like Honda and Nikola.
  • CEO Mary Barra highlighted that the deal creates a new revenue stream and helps GM drive efficiency through scale in high-volume electric vehicle segments.
  • Nikola expects to save over $4 billion in battery and powertrain costs over the next 10 years thanks to GM's technology transfer.
  • The partnership allows GM to monetize its EV technology more quickly, alleviating Wall Street pressure without needing an immediate spin-off.
  • GM will receive regulatory credits from Nikola that can be used for compliance or sold profitably to other companies.
Risk Factors
  • GM is taking a 10-year partnership with Nikola, an unprofitable company that lost $86.6 million in the second quarter of 2020, representing a significant financial risk.
  • The deal requires GM to manufacture and engineer Nikola's Badger truck and supply batteries for other Nikola vehicles, potentially overextending its resources on a startup with a questionable track record.
  • Nikola has not yet achieved profitability, and its valuation was significantly higher at the time of the partnership compared to traditional automakers, raising concerns about GM tying itself to an expensive asset.
  • While GM expects $4 billion in benefits, it is granting Nikola access to GM's proprietary technology and platforms without receiving immediate upfront cash, which could delay monetization of GM's EV assets.
  • The agreement involves a $2 billion stock investment with incremental releases through 2025, meaning GM will not receive the full value until 2025, leaving the company exposed to Nikola's performance in the interim.
  • There is a risk that if the partnership fails or Nikola struggles again, GM could face stranded assets and reputational damage from associating its brand with a controversial EV startup.
Full Analysis
General Motors has announced a significant $2 billion strategic partnership with electric vehicle startup Nikola, marking GM's second major EV collaboration in less than a week. Under the 10-year agreement, GM will acquire an 11% ownership stake in Nikola through newly issued common stock distributed over three increments until 2025. A key component of this deal involves GM engineering and manufacturing Nikola's "Badger," an electric pickup truck comparable in size to a Chevrolet Silverado, utilizing GM's own battery systems and hydrogen fuel cell technology. The Badger is scheduled for production by the end of 2022. While Nikola will retain responsibility for sales and marketing of the Badger and continue operating its heavy truck factory in Coolidge, Arizona, GM will supply batteries and powertrain components for other Nikola vehicles as well. This arrangement allows GM to monetize its electric vehicle platforms and battery technology, potentially transforming its business model into a supplier for EV frames and components to other industry players. The partnership is expected to provide GM with over $4 billion in benefits, stemming from stock issuance, manufacturing contracts, supply agreements, and the sale of electric vehicle regulatory credits. The deal has already impacted market sentiment, with Nikola shares surging nearly 50% to $53.32 and GM shares rising approximately 11% to $33.16 in Tuesday afternoon trading. Wedbush analyst Daniel Ives characterized the agreement as a massive credibility boost for Nikola, effectively resolving previous skepticism regarding founder Trevor Milton's ambitions. Nikola executives noted that the partnership saves them from the capital expense of building a new factory for the Badger and expects to realize over $4 billion in cost savings on batteries and powertrains over the decade. This follows GM joining Japanese automaker Honda earlier in the month to share development costs for battery and internal combustion vehicles, signaling a broader industry shift toward partnerships to mitigate the high costs of electric vehicle development.