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Sep 8, 2020

GM takes US$2B stake in Nikola and partners on pickup model

Trevor Milton, founder of Nikola Motor Company

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General Motors Co. took a US$2 billion equity stake in startup Nikola Corp. and agreed to manufacture a new electric-pickup model in a deal that diversifies the Detroit-based automaker’s alternate-fuel vehicle strategy.

GM will contribute technology and manufacturing in exchange for an 11 per cent stake in Nikola and get the right to nominate one director to the company’s board, according to a statement. Shares of both companies jumped on the surprise announcement.

The two companies expect the truck to start production by the end of 2022.

The partnership gives Nikola -- which has yet to generate any meaningful revenue -- an immediate boost of legitimacy and the industrial might of an established player while also benefiting GM. The well-established automaker expects to receive more than $4 billion in perks from the deal. In addition to the equity value of the shares, it will be paid to manufacture the Badger, supply batteries and begin commercializing fuel-cell technology for the semi-truck industry.

What Bloomberg Intelligence Says:

“General Motors’ US$2 billion stake in EV and hydrogen semi-truck maker Nikola -- a US$13 billion market-cap company with no revenue or sellable vehicles thus far -- is a hedge against the headline risk of not volume-selling competitive alternative-drivetrain vehicles. Nikola isn’t more advanced than GM but the partnership will boost brand perception for the legacy automaker.”

-- Kevin Tynan, senior autos analyst

GM is increasing its exposure to alternate-fuel vehicles, an area that increasingly has captured the attention of investors. The new pickup, called the Badger, could compete against GM’s own electrification plans for future vehicles such as a promised Hummer pickup that goes on sales late next year. The carmaker also may see it as a way to test demand for battery-powered trucks.

In addition, GM gets to keep 80 per cent of the electric-vehicle regulatory credits from sales of the Badger pickup and has right of first refusal on the other 20 per cent. That will help the automaker meet emissions regulations as it focuses on profitable gas-powered sport utility vehicles and trucks.

GM does risk fostering a new rival in the way that early investments in Tesla Inc. by Daimler AG and Toyota Motor Corp. helped that electric-car company grow into a fierce competitor. But GM Chief Executive Officer Mary Barra sees lots of room for growth in the budding market for EVs and noted GM gets access through Nikola to the Class 7 and 8 freight truck business.

“We see huge growth opportunities for both of us,” Barra said on a call with reporters. “We view that there’s going to be plenty of opportunity for different customers and products. When you look at opportunity to partner with Nikola on Class 7 and 8, that’s a wide-open opportunity for us.”

F-150 Rival?

For Nikola, the partnership with GM is a vindication of its efforts to gain credibility as it moves toward production of its first vehicles. The Phoenix-based company engineered a reverse merger in June, gaining a public listing and more notice for its ambitious plans to enter the market for battery-powered and fuel-cell vehicles. It has garnered its share of fans and skeptics, who founder Trevor Milton has been known to engage with on Twitter, where he has promoted the company and sought to quell critics.

“This news is a huge shot in the arm for Nikola,” Dan Ives, an analyst at Wedbush Securities with a “neutral” rating on the company’s stock, said in a research note Tuesday. “There have been many skeptics around Nikola and its founder Trevor Milton’s ambitions over the coming years, which now get thrown out the window with stalwart GM making a major strategic bet on Nikola for the next decade on the EV and fuel-cell front.”

Nikola rose 38 per cent to US$49.16 as of 10:41 a.m. in New York. Shares of GM gained 8 per cent to US$32.47. Electric-car market leader Tesla fell as much as 19 per cent amid dashed expectations its shares would be added to the S&P 500.

Milton, who also is Nikola’s chairman, has said the Badger will sell for between US$60,000 and US$90,000, which analysts say could be a profitable niche in the larger U.S. pickup market. He also has said he hopes the Badger will one day rival Ford Motor Co.’s F-150, which for 43 years has been America’s best-selling pickup.

Nikola will save an estimated US$4 billion in development costs by partnering with GM, Milton said in a tweet Tuesday. “Who better than GM to help engineer, validate, test and manufacture,” he said.

As recently as a year ago, Nikola had no plans to build a pickup, just an idea that gelled in November after Tesla unveiled a prototype of its own futuristic electric truck. Nikola first unveiled the Badger in February and started to take pre-orders from buyers in June.

Nikola’s not alone in targeting pickup buyers with a more-sustainable option. Rivian Automotive Inc., an EV startup backed by Amazon.com Inc. and Ford, plans to start producing an electric pickup by June 2021. Ford promises an electric F-150 by 2022, and Fiat Chrysler Automobiles NV has said it is mulling an electrified version of its Ram pickup.

The Badger will be capable of doing 0-60 miles per hour in less than 3 seconds and, depending on the configuration, will have a maximum 600-mile range between charging sessions, according to the company’s website.