Nikola (NKLA) Shares Rocket Higher by Over 40 Percent Following a Strategic Partnership With General Motors (GM) and a Share Subscription Agreement Worth $2 Billion

Sep 8
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Nikola Corporation (NASDAQ:NKLA), the pre-revenue company that is banking on trucks powered by electric batteries as well as hydrogen fuel cells, has taken a major step today toward initiating commercial operations.

As per the Form 8-K filed by Nikola with the U.S. Securities and Exchange Commission (SEC) just moments ago, the company has entered into a strategic partnership and a share subscription agreement with General Motors (NYSE:GM). The filing notes:

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“On September 3, 2020, Nikola Corporation (the “Company”) and General Motors Holdings LLC (“GM Holdings”) entered into a Subscription Agreement (the “Subscription Agreement”), pursuant to which the Company agreed to issue and sell 47,698,545 shares of its common stock (the “Shares”) to GM Holdings valued at $2.0 billion (the “Investment”) based on a volume-weighted average price per share of the Company’s common stock of $41.93, as determined over a period of time ending one day prior to the execution of the Subscription Agreement.”

The filing provides further details regarding this subscription agreement:

"In connection with the Closing, the Company and GM Holdings have also agreed to enter into a Stockholder Agreement (the “Stockholder Agreement”). Under the terms of the Stockholder Agreement, GM Holdings will be (a) entitled to nominate a board designee for election beginning at the Company’s 2021 annual meeting of stockholders, (b) subject to certain lockup and transfer restrictions and receive certain customary registration rights and (c) subject to certain market standstill provisions…”

Bear in mind that this agreement is expected to achieve closure by the 30th of September 2020. If, however, both parties fail to close this agreement by the 3rd of December 2020, either party may terminate the agreement.

As far as the strategic partnership with General Motors is concerned, Nikola stated in the Form 8-K:

“Concurrently with the Subscription Agreement, GM Holdings, GM Global Technology Operations LLC (“GTO,” together with GM Holdings, “GM”) and the Company entered into a Master Electric Truck Development Agreement (“METDA”) for the design and development of certain electric and fuel cell powered trucks that are to be identified under individual program plans to be entered into by the parties, each of which will have a default term of six years.”

Elaborating on the Master Electric Truck Development Agreement (METDA), Nikola noted:

"Two initial program plans are attached to the METDA, and each covers vehicles developed under the METDA based on extant GM platforms for light-duty trucks, customized with upper bodies designed by or for the Company, and branded under the Company’s name. GM will retain intellectual property ownership of its platform, and the Company will own the intellectual property developed for the customized upper bodies. These vehicles will be manufactured and supplied to the Company pursuant to the terms of a Master Vehicle Supply Agreement (“MVSA”), to be entered into by the parties.”

To summarize, General Motors will retain the Intellectual Property (IP) rights pertaining to its platform while Nikola will command ownership of the IP in connection with the customized upper bodies of its vehicles. Moreover, initially, the IP license under the METDA has been granted by General Motors to Nikola for the North America region. Crucially, Nikola will reimburse General Motors $700 million in funds that are to be expended to upscale manufacturing capacity to 50,000 units per annum “of the initial two vehicles”.

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While detailing the Fuel Cell System Supply Agreement (FCSA) with GM, Nikola stated in the filing:

“Additionally, on September 3, 2020, the Company and GM Holdings entered into a binding Fuel Cell System Supply Agreement (the “FCSA”) term sheet, pursuant to which the Company has agreed purchase from GM hydrogen fuel cell propulsion systems for the Class 7 and Class 8 trucks that the Company manufactures. The Company is required to purchase these systems exclusively from GM (except for the European market) for a period of four years following the start of production of such vehicles, subject to qualifications provided in the term sheet.”

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As stated earlier, Nikola shares are on a tear currently, having risen over 40 percent in today’s pre-market session.

Nikola is working steadily toward launching formal commercial operations. As an illustration, the company revealed actual shots of the Badger electric pickup truck’s components on the 24th of August. As per the tweet by Trevor Milton, the Executive Chairman of Nikola Corporation, the company is slated to unveil frame, batteries, and e-axle shots on the 21st of September.

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