Nikola (NASDAQ: NKLA) Seems To Be Preparing To Abandon the Badger Electric Pickup Truck – Should Investors Recalibrate Their Expectations as Well?

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Nikola Corporation (NASDAQ:NKLA), the pre-revenue company attempting to retail hydrogen-powered and electric trucks, seems to have won a modicum of stability for itself following tumultuous past few months in the wake of an explosive report by Hindenburg Research.

However, it appears that Nikola has placed the Badger electric pickup truck on the chopping block in order to distance itself from the controversies surrounding the former Executive Chairman of the company, Trevor Milton. The first inkling of this potential development emerged back in October when Nikola’s CEO, Mark Russell, downplayed the role of General Motors (NYSE:GM) – seen as a crucial lynchpin in the company’s strategy to market the Badger truck. Specifically, the CEO had noted in an interview with Bloomberg:

Nikola (NASDAQ: NKLA) Shares Experience a Bloodbath as It Inks a Watered-Down, Non-Binding MOU With General Motors While Also Abandoning the Badger Pickup Truck

“We have the ability and we have a base plan of doing it ourselves. If we have a partner, that just enables us to consider going faster and helps reduce the risk.”

As a refresher, under the terms of the proposed partnership, General Motors will manufacture the BEV and FCEV variants of the Nikola Badger electric pickup truck. It will also provide the Ultium battery system and Hydrotec fuel cell technology for Nikola’s Class 8 trucks. In return, GM 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 will receive preferential rights to at least 80 percent of the Badger truck’s tax credits. Moreover, GM will also get the right of first refusal to the residual 20 percent of tax credits. For its part, Nikola will be responsible for the sale and marketing of the Badger truck while also retaining control of the Badger brand.

As is evident from the primer above, the current terms of the proposed partnership are heavily in favor of General Motors. Bear in mind that Nikola has previously stated that it will only manufacture the Badger truck in partnership with another OEM, with GM being at the forefront of this list. While talks between Nikola and GM are still ongoing, it is not yet clear when – or even if – this proposed partnership will achieve closure.

Nonetheless, Nikola’s Q3 2020 earnings call yesterday afforded much more clarity on this front, as the company sought to further undermine the utility of the partnership with General Motors. While Russell again reiterated that negotiations with GM were still continuing, he noted in response to a question by Cowen’s Jeff Osborne:

“The base plan that we are going into production with for the Nikola Tre BEV, that electric vehicle is a battery pack that we have designed and engineered, and which contains a battery module designed and engineered by Romeo, which contains cells from a Korean supplier. And that's what we will be going into production with next year. The agreement with GM was going to give us options for the next generation of our vehicle, which would be based on a non-cylindrical cell. GM is developing an Ultium battery system that's based on pouch or large format cells, that would have given another option for generation two of our vehicles.”

Mark Russell then expressed almost identical sentiments when it came to Nikola’s use of GM’s Hydrotec fuel cells:

“So our base plan is to go into production with a fuel cell that we have developed in collaboration with Bosch over a number of years, that's been specially engineered and designed to be used in heavy-duty truck, heavy-duty vehicle. The Hydrotec system from General Motors is also an impressive fuel cell system, but right now, it's engineered for passenger cars. Like most fuel cell systems are. So then the deal with GM and that would give us the – again a backup plan that we could use for future iterations of our vehicles using that technology, which tests very impressively, by the way, we’re impressed with the Hydrotec system and – in our testing. And so we'd love to have that as an option for our vehicles, in addition to the system we develop with Bosch, but the base plan is to use the system we've already developed, and we are engineering into our production vehicles for the fuel cell system.”

As is clear from the comments above, Nikola seems to be highlighting the seemingly extraneous nature of this proposed partnership with General Motors while asserting the viability of current battery and hydrogen fuel cell plans. When JP Morgan’s Paul Coster asked point-blank if the company would be able to close the GM deal by December 2020, Russell stated:

Nikola Q3 2020 Earnings – Investors Remain Fixated on the Fate of the Company’s Partnership With General Motors

“… with regard to the Badger, we [have] just been very consistent; when we announced the Badger, we said, we'd like to – we would do that with a partner. GM is – the GM dealing anticipates being that partner, and that's all we can report at this point.”

Shortly after the earnings call, Nikola also removed any mention of the Badger trucks from its website:

Readers should note that in the wake of the Hindenburg saga, it was only GM’s supposed endorsement of Nikola that saved the company’s tattered reputation from a complete evisceration. However, now that the upheaval has subsided and Nikola seems to be progressing smoothly toward its stated goals, the heavily-skewed deal with General Motors does not look that attractive. Consequently, it makes sense for the company to try to secure better terms through negotiation or even walk away. Of course, the only casualty in the latter case would be the Badger electric pickup truck.

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