GM isn't traveling alone into the EV era

DETROIT — General Motors' latest strategy: Give and take.

Partnerships with Honda Motor Co., electric vehicle startup Nikola Corp. and battery supplier LG Chem show GM's willingness to share technology and manufacturing power for the mutual benefit of itself and its allies. The approach also can shave the massive costs required to become an EV leader.

GM CEO Mary Barra says the partnerships will give the automaker greater scale and drive down costs more quickly, which will be key to unlocking the EV market. Morgan Stanley predicts the Ultium batteries GM plans to make with LG Chem will be used in more than 5 million EVs annually by 2040, including more than a million non-GM vehicles.

GM has been investing in EVs and hydrogen fuel cell technology for years but so far has little to show for it in terms of sales.

"We're going to leverage that and really seize the opportunity that we have to be able to grow in areas that, in the past, most of the traditional OEMs didn't," Barra said. "This is a new path, and we're very excited."

The tie-ups bring to mind the late Fiat Chrysler Automobiles CEO Sergio Marchionne's 2015 manifesto — "Confessions of a Capital Junkie" — on the need for industry consolidation to rein in vehicle development costs as well as Carlos Ghosn's alliance linking Renault, Nissan and Mitsubishi.

GM's alliances are not exactly what Marchionne and Ghosn envisioned, but they demonstrate a realization that the company doesn't have to figure out the technologies of the future on its own while balancing investing in the profitable vehicles of today, Gartner analyst Mike Ramsey said.

"This idea that their brands are monoliths and that we have to be able to do everything ourselves is something that has hurt the industry in general over time," Ramsey said.

GM last week said it would take an 11 percent stake worth $2 billion in startup electric truckmaker Nikola under a partnership that calls for GM to engineer and build Nikola's Badger pickup and another vehicle using Ultium batteries.

Nikola will reimburse GM for up to $700 million of capital expenses for manufacturing capacity of up to 50,000 units per year of the initial two vehicles, according to a Nikola filing with the U.S. Securities and Exchange Commission.

That deal came days after GM and Honda revealed plans to form a North American alliance that could include sharing vehicle platforms in four core segments. The partnership would combine Honda's sedan clout and continued internal-combustion focus with GM's pickup and SUV strength and its commitment to electrification. It builds on an earlier agreement for GM to help develop two Ultium-powered EVs for Honda.

"There are some automakers that for strategic reasons haven't made EVs as much of a priority as GM has, and now they can rely on GM's expertise," said David Whiston, senior equity analyst for Morningstar.

Both deals were made possible in part by the $2.3 billion joint venture GM formed in late 2019 with LG Chem to mass-produce Ultium batteries near GM's former assembly plant in Lordstown, Ohio. The venture aims to have at least 1,100 employees and open by January 2022.

"We said with that platform we would be able to provide a wide range of EVs that would be profitable. The partnerships we have are additive to that," Barra said. "It's important that we have great partners that we know we can work with, that we can explore opportunities, brainstorm with each other, solve challenges in a win-win fashion."

GM's partnerships with LG Chem and Honda are the results of long-standing, mutually beneficial collaborations, but its stake in Nikola marks a new relationship with a young automaker. Nikola is unproven, but it went public with the help of former GM vice chairman Steve Girsky and already has cachet among Wall Street investors who have tended to be skeptical of GM.

"I could easily see GM start to envision using this partnership strategy as a means to grow scale and not just be focused on selling GM vehicles," Ramsey said. "They have other ways of making money, and it could be through licensing their technology."

GM has a checkered history with joint ventures and alliances. It paid $2 billion to get out of a tie-up with Fiat in 2005. And an alliance with Daewoo fell apart in 1992 before GM eventually bought the brand and turned it into GM Korea. GM built vehicles with Toyota Motor Corp. from 1984 to 2010 at the California plant that Tesla now owns, and it successfully collaborated with Suzuki and Isuzu for long stretches as well.

GM's newest partnerships may show that the company has transformed itself from a quality laggard that let Japanese competitors steal significant market share in the 1980s and 1990s into one of the auto industry's technological leaders.

"Even today, there are still plenty of Americans who think America's automakers make lousy cars, which I don't think is fair," Whiston said. But with the Honda-GM alliance, "a Japanese automaker [is] coming to an American automaker saying, 'We need your expertise.' I think that's pretty cool."

With Nikola, GM will commercialize its fuel cell technology in high volumes and extend the use of its fuel cell system to the semitruck market. Barra said there is a multibillion-dollar market for fuel cell-powered vehicles, and the Nikola partnership allows GM to refine the technology and apply it to more industries.

GM and Honda have co-developed hydrogen fuel cell technology since 2013, but "fuel cells aren't getting the attention they deserve," said Brian Moody, executive editor of Autotrader.

Honda, Toyota and Hyundai Motor Co. have fuel cell-powered vehicles available in some regions. "By GM forming a partnering with Honda and now Nikola, it shows they're serious about alternative-fuel vehicles," Moody said.

GM told investors it could apply fuel cell technology to other areas, such as aerospace and sea. It is planning a fuel cell-powered Badger with Nikola.

"All of a sudden, you've got all these auxiliary businesses that supplement selling pickup trucks and SUVs," Whiston said. "I think GM feels, 'We can do this by ourselves but still get some outside help without taking a lot of risk.' The [partnerships] are low-risk, high-reward."