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Nikola Corporation (NASDAQ:NKLA) shareholders have certainly endured a maelstrom over the past couple of weeks as the company moved from one crisis to another at a seemingly endless frequency. However, recent developments have provided a ray of optimism that these incessant travails might be at an end.
Readers will remember that Hindenburg’s vicious attack against Nikola precipitated a chain of events that culminated in the unceremonious departure of Trevor Milton, Nikola’s public face and a very vocal Executive Chairman. To wit, Hindenburg had alleged that, contrary to boisterous public claims, the company did not possess any worthwhile intellectual property pertaining to batteries or hydrogen fuel cells. However, the most damning aspect of the research house’s report dealt with the purported deceptive tactics employed by Nikola on a regular basis. To hammer this point home, Hindenburg had revealed that the Class 8 electric truck showcased in “Nikola One in Motion” video by the company was actually cruising down a slope without any onboard propulsion. To add the cherry on top, a number of sexual misconduct allegations soon surfaced against Mr. Milton, transforming him into a toxic asset for the company and spurring his surprise departure.
In the aftermath, Nikola has tried to distance itself from Trevor Milton by revamping its communication strategy, focusing primarily on informing its investors as well as maintaining regular contacts with established media. Nonetheless, Nikola’s detractors cite the following passage from the company’s prospectus (page 45):
“We are highly dependent on the services of Trevor R. Milton, our Executive Chairman, and largest stockholder. Mr. Milton is the source of many, if not most, of the ideas and execution driving Nikola. If Mr. Milton were to discontinue his service to us due to death, disability or any other reason, we would be significantly disadvantaged.”
Of course, as the largest shareholder of Nikola, Trevor Milton’s specter will continue to haunt the company for a considerable time period.
Additionally, one of the more damning developments recently has been the revelation that, instead of designing its Nikola One Class 8 electric trucks in-house, the company had purchased the said design from Croatia-based Rimac Automobili. In fact, the first hint on this front came from Tesla’s (NASDAQ:TSLA) patent counsel who had alleged on the 23rd of September, during court proceedings pertaining to Nikola’s lawsuit against Tesla, that the company had stolen the design for the truck in question.
This brings us to the crux of the matter. Despite this litany of damaging developments, signs are emerging that suggest Nikola’s woes may be at an end. The surest signal for this hypothesis came yesterday when it emerged that General Motors (NYSE:GM) was looking to enhance its stake in Nikola following the plunge in its stock price.
We have repeatedly noted that Nikola’s proposed partnership with General Motors is its most vital lifeline currently. As a refresher, under the terms of the proposed partnership, General Motors will manufacture the Nikola Badger electric pickup truck – the BEV as well as the FCEV variants. It will also provide batteries and fuel cells for Nikola’s Class 8 trucks. To this end, Nikola will utilize GM’s under-development Ultium battery system and Hydrotec fuel cell technology. In return, General Motors will receive an 11 percent stake – corresponding to 47.7 million shares – in Nikola Corporation at zero additional cost. Additionally, it will also receive $2 billion as compensation for providing services as well as access to key parts and components, including $700 million in production-related costs. As an additional incentive, General Motors has acquired the rights to at least 80 percent of the tax credits that will be generated through retailing the Badger truck. Additionally, GM will also get the right of first refusal to the residual 20 percent of tax credits. For its part, Nikola will simply be responsible for the sale and marketing of the Badger truck while also retaining control of the Badger brand.
Given that this agreement is so evidently skewed in favor of General Motors, we believe that the chances of the auto giant walking away from this deal are slim. However, consternations did emerge toward the end of September when the two parties failed to close the agreement as per the stipulated timeline. These concerns have now been allayed amid reports that negotiations are still ongoing. It is hardly surprising, therefore, that Nikola shares staged an epic comeback yesterday, registering a gain of over 14 percent amid reports of General Motors acquiring a larger stake in the embattled company. Even in today’s pre-market trading session, the stock is up another 7 percent:
If, however, General Motors does eventually walk away from this partnership deal with Nikola, the budding optimism will evaporate at lightning speed, dealing a blow from which the company may never recover.