General Motors goes aggressive on EV bet, takes 11% stake in Nikola

Summary

• General Motors (GM) announces partnering with tech startup Nikola to produce electric-pickup vehicle model.
• Both companies’ share price rose substantially after the surprise announcement.
• GM is taking another critical step towards fulfilling its vision of a zero-emission future by applying its electrified technology solutions to the heavy-duty class of commercial vehicles.

General Motors Company’s (NYSE:GM) share price jumped to a six-month high, post announcing buying US$2 billion equity stake in a startup called Nikola Corporation (NASDAQ:NKLA). General Motors intends to manufacture a new electric-pickup vehicle model. To amplify its alternative-fuel vehicle strategy, Detroit-based automaker GM will contribute its technology and manufacturing by providing engineering, homologating, validating and manufacturing the Nikola Badger battery electric and fuel cell versions.

Both companies' shares jumped after the surprise announcement. GM shares saw a steep 8% rise to hit the highest levels since February when the coronavirus pandemic struck the market down. Nikola’s share price jumped by more than 40%.

The GM released a statement on the day of announcement stating that it would receive 11% stake in Nikola and a board seat in exchange. There will be no cash exchange as the deal is mutually beneficial. The statement further highlighted that the startup Nikola is yet to generate any meaningful revenue. Hence, the deal with established player GM is an immediate boost for Nikola's legitimacy. The GM expects to receive more than US$4 billion in perks from this partnership.

Nikola, on the other hand, will exchange US$2 billion in newly issued common stock for in-kind services from GM and access to GM’s global safety-tested and validated parts and components. Common stock received by GM is subject to a staged lock-up provision that begins in one year and ends in June 2025.

Nikola Founder and Executive Chairman Trevor Milton said that Nikola is one of the most innovative companies globally. At the same time, GM is leading the engineering and manufacturing space in the world. He said that none could dream of a better partnership than this. He further added that joining two teams together, Nikola gets access to GM's validated parts for all their programs.

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Ultium battery technology and a multi-billion dollar fuel cell program of GM is ready for manufacturing. Therefore, Nikola will immediately get a legendary supplier and manufacturing knowledge. Milton stated in the release that Nikola is receiving a validated and tested production-ready EV propulsion along with world-class engineering and investor confidence. GM has a vested interest to see Nikola succeed, said the Nikola Founder and Executive Chairman Trevor Milton.

General Motors Chairman and CEO Mary Barra said in the statement that this strategic partnership with an industry-leading disrupter such as Nikola would continue the broader development of GM's all-new Ultium battery and Hydrotec fuel cell systems. Barra said that the GM is also growing its presence in multiple high-volume EV segments. Building scale to lower battery and fuel cell cost is also on top priority to the GM, and the Company will increase in profitability. Barra mentioned GM taking another critical step fulfilling its vision of a zero-emission future through applying its electrified technology solutions to the heavy-duty class of commercial vehicles.

The agreement allows General Motors to utilise Nikola’s fuel cell technology to the Class 7/8 semi-truck market. The deal will also represent high-volume commercialisation of its leading Hydrotec fuel cell system. The partnership will also complement the Company's battery-electric propulsion. The Company is highly investing and focusing on battery development. The Ultium battery technology plan includes silicon anodes and lithium metal anodes. Both will improve vehicle's range, affordability, and most importantly reduce dependence on rare and costly metals, a way ahead with clean energy and zero-emission future. General Motors' new battery technology is currently showcasing automotive-grade durability and significantly higher energy density.

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In the future, fuel cells will grow to become an essential component of the semi-truck market, as they have shown to be more efficient than other fuels such as gas and diesel. Apart from a battery technology, GM sees added growth prospects in various other end markets such as transportation, stationary and mobile power.

As per the agreement made between two companies, Nikalo will take responsibility for the sales and marketing of the vehicle, which is called Badger. The tech startup will also retain the Nikola Badger brand. Two companies plan to begin truck production by late 2022. The truck was announced in February 2020. Nikola expects to make its public debut in December at a launch event Nikola World 2020 in Arizona. A pre-event party is also organised a day before the launch and Badger consumers will be able to see and test drive the model on the next day of the launch, according to the young Nikola Founder and Executive Chairman Trevor Milton announced on Twitter. He also shared the pictures of the vehicle and announced his excitement in partnering with General Motors.

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