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
Nikola Corporation (NASDAQ:NKLA) has been on the radar of investors for a few weeks now as the uncertainty surrounding its much-anticipated partnership with General Motors (NYSE:GM) only continued to escalate. Today, the company has finally afforded clarity on this front by inking a limited and non-binding Memorandum of Understanding (MOU) with GM.
As per the press statement released moments ago, Nikola has signed a non-binding global supply agreement with General Motors for its Hydrotec fuel-cell system:
“Under the terms of the MOU, Nikola and GM will work together to integrate GM’s Hydrotec fuel-cell technology into Nikola’s Class 7 and Class 8 zero-emission semi-trucks for the medium- and long-haul trucking sectors. As previously announced, Nikola expects to begin testing production-engineered prototypes of its hydrogen fuel-cell powered trucks by the end of 2021, with testing for the beta prototypes expected to begin in the first half of 2022. In addition, Nikola and GM will discuss the potential for the utilization of GM’s versatile Ultium battery system in Nikola’s Class 7 and Class 8 vehicles.”
Crucially, however, General Motors has chosen not to acquire the previously stipulated 11 percent equity stake in Nikola. Moreover, the press statement has also eliminated the possibility of a Badger electric pickup truck, hammering the share price in the process. As an illustration, the stock is currently down over 20 percent.
We noted about two weeks back that Nikola was laying the groundwork for abandoning its expansive partnership with General Motors. To wit, the company’s CEO, Mark Russell, had noted during the Q3 2020 earnings call:
“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.”
As is clear from the comments above, Nikola seemed to be highlighting the seemingly extraneous nature of this proposed partnership with General Motors while asserting the viability of its current battery and hydrogen fuel cell plans. Russell had then gone on to state:
“… 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.”
Under the proposed terms of the original deal, General Motors was to manufacture the BEV and FCEV variants of the Nikola Badger electric pickup truck. It was also required to provide the Ultium battery system and Hydrotec fuel cell technology for Nikola’s Class 8 trucks. In return, GM would have received an 11 percent stake – corresponding to 47.7 million shares – in Nikola Corporation at zero additional cost. Additionally, it would also have received $2 billion as compensation for providing services as well as access to key parts and components to Nikola, including $700 million in production-related costs. As an additional incentive, General Motors would have received preferential rights to at least 80 percent of the Badger truck’s tax credits. Moreover, GM would have also acquired the right of first refusal to the residual 20 percent of tax credits. For its part, Nikola was to be responsible for the sale and marketing of the Badger truck while also retaining control of the Badger brand.
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