GM makes $2bn bet on EV start-up Nikola
Southfield — General Motors (GM) took a $2bn equity stake in start-up Nikola, agreeing to manufacture its Badger electric-truck model and diversifying the Detroit-based company's alternative-fuel vehicle strategy.
GM will contribute technology and manufacturing in exchange for an 11% 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 carmaker expects to receive more than $4bn 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 commercialising fuel cell technology for the semi-trailer truck industry.
GM is increasing its exposure to alternative-fuel vehicles, an area that increasingly has captured the attention of investors. The Badger truck could compete against GM’s own electrification plans for future vehicles such as a promised Hummer truck that goes on sales late in 2021. The carmaker also may see it as a way to test demand for battery-powered trucks.
In addition, GM gets to keep 80% of the electric-vehicle regulatory credits from sales of the Badger and has right of first refusal on the other 20%. That will help the company meet emissions regulations as it focuses on profitable sport utility vehicles and trucks.
GM does risk fostering a new rival in the way that early investments in Tesla by Daimler and Toyota Motor helped that electric-car company grow into a fierce competitor. But GM CEO 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.”
For Nikola, the partnership with GM is a vindication of its efforts to gain credibility as it moves towards 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 sceptics, 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 on Tuesday. “There have been many sceptics about 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% to $49.16 in New York. Shares of GM gained 8% to $32.47. Electric-car market leader Tesla fell as much as 19% amid dashed expectations its shares would be added to the S&P 500.
Milton, who also is Nikola’s chair, has said the Badger will sell for between $60,000 and $90,000, which analysts say could be a profitable niche in the larger US truck market. He also has said he hopes the Badger will one day rival Ford Motor’s F-150, which for 43 years has been America’s best-selling truck.
Nikola will save an estimated $4bn 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.
Nikola Motor and General Motors announcement. Unstoppable. #nikolabadger is one of the most anticipated vehicles coming to market and who better than GM to help engineer, validate, test and manufacture. Estimated 4 billion in savings to Nikola. Nikola + GM announced today. pic.twitter.com/9RJc9Ddq6J— Trevor Milton (@nikolatrevor) September 8, 2020
As recently as a year ago, Nikola had no plans to build trucks, 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 truck buyers with a more-sustainable option.
Rivian Automotive, an EV start-up backed by Amazon.com and Ford, plans to start producing an electric truck by June 2021. Ford promises an electric F-150 by 2022, and Fiat Chrysler Automobiles has said it is mulling an electrified version of its Ram.
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