(Bloomberg Opinion) -- If General Motors Co. doesn’t want to own a chunk of Nikola Corp., why should you?
That’s the question after GM announced a much scaled-down partnership with the electric-vehicle upstart on Monday. The tie-up — initially announced in September — had been in flux amid allegations of deception at Nikola from a short-seller that the company has denied. That sparked a sharp recalibration of Nikola’s valuation and the subsequent departure of founder Trevor Milton as executive chairman, raising uncomfortable questions about whether GM really did its due diligence the first time around. The fact that there’s still any partnership with GM at all is a victory of sorts at this point for Nikola, but what remains is far from the endorsement it once was.
Most notably, GM will no longer take the 11% holding in Nikola outlined in the original deal. In fact, it doesn’t appear the company will take any equity position at all. GM also won’t take on the job of producing and developing Nikola’s electric pickup dubbed the Badger. That program now appears to be kaput, with Nikola saying it will refund all customer deposits in the absence of a manufacturing partner. What GM will do is supply its Hydrotec fuel-cell system to Nikola’s commercial semi-trucks that are expected to begin production-engineered prototype testing by the end of 2021. Nikola is expected to pay upfront for the capital investment and GM will supply the technology “cost plus” — meaning Nikola will reimburse it for costs incurred as well as a specified profit. In short, this partnership is now little more than a traditional supplier contract.
Gone is the highfalutin praise of Nikola as an industry-leading disruptor. In fact, GM CEO Mary Barra isn’t quoted at all in either company’s press release this go-around. Instead, Doug Parks, GM’s executive vice president of global product development, purchasing and supply chain, is featured in the company’s statement and talks only of its own technology. It’s a symbolic measure of just how significantly the partnership has been downgraded. Nikola shares dropped more than 20% in early trading.
The commentary leading up to Monday’s announcement had seemed to indicate that, if anything, GM might take a bigger equity stake in Nikola to compensate for the drop in the company’s valuation and the potential for the work to be scaled back. JPMorgan Chase & Co. analyst Paul Coster had expressed skepticism last week that the Badger program would proceed, given a noncommittal attitude from Nikola CEO Mark Russell and the risk that the required investments would siphon cash away from more important semi-truck initiatives. Bloomberg reported in October that GM may seek a higher stake or demand warrants that would guarantee or even increase its level of ownership if Nikola raised more money.
GM had plenty of leverage to renegotiate on whatever terms it wanted. It was never paying cash for the holding but rather receiving the shares in exchange for technology and services. In the end, the automaker seems to have decided an investment in Nikola just wasn’t worth the risk and that it would rather prefer the certainty of cash payments for its contributions.
As I wrote in September when the transaction was first announced, the appeal of the transaction for GM seemed to be the opportunity to capture some of the buzz around Nikola and other electric-vehicle startups for itself and help the company get proper credit for its own technology investments. And as my colleague Chris Bryant wrote, neither Milton nor Barra were able to provide many convincing examples of innovations Nikola would contribute to the partnership; the company’s real strength appeared to be integrating innovations from others. The terms of the new agreement still allow GM to shine a spotlight on its fuel-cell technology, but the going rate for buzz these days just isn’t what it used to be — for both GM and those Nikola holders that are still stuck with their shares.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
©2020 Bloomberg L.P.