On September 8, General Motors shares rose nearly 10% after the legacy automaker announced that it would take an 11% stake in Nikola Motor and provide technology to the bustling hydrogen electric truck startup.
Everything has been, to put it mildly, downhill from there.
Since then, Nikola’s fraud allegations have dismembered his shares and GM’s promised stake has lost nearly $ 1 billion in value since the deal was announced. GM shares also fell on Monday after the announcement that Nikola founder and former CEO Trevor Milton would step down as CEO and leave the company. GM shares have now returned all the earnings that followed the partnership announcement.
Most importantly, GM didn’t put any cash into the deal. In addition, Nikola would also pay GM for its engineering and manufacturing work, and for building factories for Nikola. Ultimately, GM’s settlement would entitle him to 80% of the valuable regulatory credits generated from the sale of Nikola vehicles. In total, GM estimated it would earn $ 2 billion from the deal in addition to the value of Nikola’s stock.
Above all, Nikola had long touted his own advancements in battery and fuel cell technology, raising questions about why GM would opt for those core components and, in general, what exactly Nikola was bringing to the table. . table. table.
Nikola had gotten a dramatic spike in values in part by promising investors the moon: not just innovative batteries and a nationwide network of hydrogen fuel facilities, but a list of potential vehicles that grew to half a dozen before either of them. . Went on sale. . .
Batteries, in particular, turned out to be a key issue in fraud allegations published by short-seller Hindenburg Research two days after the GM deal was announced. Nikola, according to the Hindenburg report, had been misrepresenting his battery development progress, in addition to faking a 2018 video of one of his trucks, which appeared to show it moving on its own hydrogen fuel cell power.
Despite noting that he would refute the allegations, Nikola never did so so convincingly, and even publicly admitted to the truck hoax (although he insisted it was not a hoax at all). On September 14, it was reported that the Securities and Exchange Commission and the US Department of Justice were investigating the claims.
Despite everything, GM supported Nikola. After Milton resigned, GM again stood firm, reiterating that it would close the deal as scheduled in late September.
That is not as surprising as it sounds. Even if Nikola completely collapses, GM is likely to come through. GM cannot sell its Nikola shares for at least a year, and no one can guess if there will be anything of value left by then. But in the meantime, GM may get to test an electric vehicle business with someone else’s money. In late July, Nikola executives said the company had about $ 900 million in equity, enough to start funding GM’s work on Nikola’s planned Badger electric truck. Assuming the work continues, it will at least be a test bed for GM’s Ultium batteries, which GM has also licensed to Honda, and it will be part of GM’s planned list of up to 20 new EV models by 2023.
That’s why Morningstar’s David Whiston told the Detroit Free Press last week that despite how bad things got for Nikola, the main risk to GM was “a big black eye from PR fraud. or bankruptcy. “
And to top it all, Nikola announced today that Milton’s position as president will be filled by former GM vice president Stephen Girsky.
So even if a reputational hit is needed, GM could survive if Nikola continues to collapse. So if the scandal-plagued startup can’t attract more investment, GM will be in a prime position to buy what’s left of Nikola – perhaps even, if Nikola’s shares go down low enough, for less than GM would be paid. For his job. .
