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Nikola (NASDAQ:NKLA) shareholders have received a fresh respite today as the investment banking behemoth, JP Morgan (NYSE:JPM), published a cheerful note, expressing optimism that the crucial Nikola-GM partnership deal will achieve closure by the 3rd of December.
JP Morgan analyst, Paul Coster, noted that the two companies form a natural symbiotic relationship as Nikola needs access to GM’s supply chain and engineering resources while General Motors (NYSE:GM), for its part, needs to generate a return on its hefty investments in hydrogen fuel cells. Moreover, in a crucial insight, Coster observed that the Badger electric pickup truck might be just a “distraction” for Nikola but a crucial testing ground for GM’s proprietary technology. Consequently, the analyst believes that a restructured deal may still be possible by the 3rd of December, paving the way for a $41 stock price target and an ‘Overweight’ overall rating.
We have repeatedly noted that Nikola’s proposed partnership with GM is its most vital lifeline currently. 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.
Readers should note that, initially, the deal was expected to be concluded by the 30th of September. First rumblings of trouble emerged when this publicly declared deadline passed without the GM deal being formalized. However, in the clearest sign yet of this proposed partnership being in jeopardy, Nikola’s CEO Mark Russell noted in a recent Bloomberg interview:
“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.”
In the interview, Mr. Russell also cast a pall over the prospects of Nikola’s Badger electric pickup truck by stating:
“The Badger is part of our discussions with GM. And we’ve been clear all along that we wouldn’t build a Badger without an OEM partner.”
As stated earlier, Nikola shares have reacted in a lukewarm fashion to this development, up only 2.73 percent in the current pre-market. However, the stock had tumbled over 16 percent on Friday after investors digested the ramifications of the Bloomberg interview by Mr. Russell.