Nikola Tumbles After GM Deal Drops Equity Tie, Plug-In Truck

(Bloomberg) -- General Motors Co. has scrapped a tentative plan to take a stake in clean-energy trucking startup Nikola Corp. and jointly build an electric pickup truck, opting instead for a much narrower relationship between the two companies.

Under terms of a pact announced Monday, GM will allow Nikola to use its hydrogen fuel-cell technology in planned semi trucks. The deal doesn’t include GM owning Nikola shares, a reversal from a proposed 11% equity stake outlined in September. The new arrangement also drops plans for GM to manufacture a battery-powered pickup for Nikola called the Badger.

The skinnier deal, in which GM will be one of two suppliers of hydrogen fuel cells for Nikola’s semi trucks, came after both companies reevaluated their relationship following the ouster of the startup’s founder, Trevor Milton. Since then, GM has upped investment in its own electric trucks and Nikola’s new management began to see the Badger as a distraction from its mission to develop hydrogen-powered semis, said people familiar with the matter.

Shares of Nikola pared a plunge as low as 27%, falling 25% to $20.98 as of 11:13 a.m. in New York. GM’s stock fell 1.6% to $44.33.

The agreement comes ahead of a Dec. 3 deadline and ends months of speculation over GM’s commitment to the Phoenix-based company after a short seller report cast doubts on Nikola’s ability to deliver on promises and its transparency with investors. The allegations of deception hammered the once high-flying stock, prompted the resignation of Milton as chairman and forced GM to reconsider terms of the initial agreement.

“This went from a game changer deal for Nikola to a good supply partnership but nothing to write home about,” Dan Ives, a Wedbush Securities analyst, wrote in a research note. “No ownership/equity stake in Nikola and the billions of R&D potentially now off the table is a major negative blow to the Nikola story.”

Milton Exit Trigger

Milton’s departure was the key moment that triggered a rethink of the original deal by both companies, said the people, who asked not to be named because the talks were private. Under former GM executive Steve Girsky as chairman and Mark Russell as chief executive officer, the startup decided to focus on the semi truck business and building a network of hydrogen filling stations.

Back in September, Milton had badly wanted to build the Badger and Nikola was willing to offer GM a more favorable deal in return for its promise to build the truck, these people said. But Nikola’s current management reckoned spending $700 million to make the pickup, plus more cash to develop a retail sales network was too heavy a lift for the startup, they said.

GM also wanted to streamline its role. Since announcing the original agreement, GM has revealed plans to boost spending on electric vehicles and speed its own plug-in trucks to market. Nikola had very little work done on the Badger and GM was less interested in helping the company develop a truck from scratch, one of the people said.

The Detroit automaker also is far more interested in finding a way to get its fuel cells, which are jointly developed with partner Honda Motor Co., on the road than it is in working on a project like the Badger.

Cybertruck Rival

The Badger pickup had been a centerpiece of the earlier proposed deal with GM and now is unlikely to be built. Nikola, which had said the vehicle depended on finding a manufacturing partner, said Monday it will refund all deposits taken for the truck.

Nikola had previously estimated production of the truck would start in 2022. Milton fast-tracked the Badger after taking notice of the fanfare around Tesla Inc.’s planned pickup, the futuristic-looking Cybertruck. But the company has never shown anything more than computer-generated images of the truck.

Nikola had promised it would unveil a prototype at a late 2020 product showcase called Nikola World. That event was postponed indefinitely after Milton stepped down, with the company citing Covid-19 concerns.

Nikola first publicly announced the truck in February, with Milton claiming the truck had been in development for years and would come with in-house battery technology. Mark Russell, who replaced Milton as chief executive officer, later contested that idea. He told investors on an August earnings call it was “just a conceptual exercise” and said last month Nikola won’t build the truck without a partner to make it.

Other Partners

The reworked agreement is more along the lines of a supply contract. In order to access GM’s hydrogen technology, Nikola will have to “pay upfront” for the investment required to produce the equipment, according to a statement from GM. It also raises the possibility the Detroit-based auto giant could supply its Ultium electric battery to Nikola, but provides no firm commitment.

Nikola expects to start producing a battery-electric semi truck by the end of 2021 in Ulm, Germany, part of a joint venture with CNH Industrial NV’s Iveco unit. Its longer-term focus is on fuel-cell powered vehicles that run on hydrogen and can allow fleet drivers to cover longer distances. Nikola has broken ground on its own factory in Coolidge, Arizona, expected to be completed by late next year and start production of a hydrogen-powered big rig by the end of 2023.

Nikola has had an agreement with German partner Robert Bosch Gmbh since 2017 to “develop, build, test and support” various components for Nikola’s prototypes, including a fuel-cell system, according to a regulatory filing. Even if the GM deal were to go ahead, Nikola told Bloomberg in September that Bosch would continue to be the fuel-cell supplier for European built FCEVs.

GM’s fuel cell technology is viewed as more mature than Bosch’s but is some way from being adapted to use in a Class 7 and 8 semi truck, Bloomberg reported in September. In the meantime, Nikola planned on using a Bosch-developed fuel cell in its prototypes, a person familiar with the matter said.

The company also has plans to find a partner by year’s end to help it roll out an ambitious hydrogen-fueling network, Russell said in a November earnings call. Nikola aims to break ground on its first commercial hydrogen station in the second quarter of next year.

©2020 Bloomberg L.P.