Revised deal slims GM EV boost

DETROIT — General Motors' revised deal with electric truckmaker Nikola Corp. is much narrower than was planned before the startup was targeted by fraud allegations, but it still will help move GM's electrification strategy forward, analysts say.

The modified agreement announced last week no longer gives GM an equity stake in Nikola and scraps a plan to have GM build an electric pickup for the startup, but it maintains a fuel cell partnership for Nikola's Class 7 and Class 8 semitrucks, marking the first commercialization of GM's Hydrotech fuel cell technology.

GM saw the initial, low-risk deal as a way to leverage its production capacity and link up with a Wall Street darling. Instead, it ended up with a public relations bruise.

Nikola, which had maintained that its Badger pickup depended on finding a manufacturing partner, said it has canceled the vehicle and will refund all deposits collected.

GM could have stuck to the original plan with little risk, but the automaker likely felt pressured to step back after a short seller publicly accused Nikola and founder Trevor Milton of fraud, said Mike Ramsey, analyst at Gartner.

Part of the initial appeal was Nikola's image as an up-and-coming startup. GM executives likely believed the partnership could boost the automaker's appeal to investors, analysts said.

But "following through with it would have called into question further whether they were making smart decisions," Ramsey said.

Under the original deal reached in September, GM would provide batteries, a chassis architecture, fuel cell systems and a plant to build the Badger. In return, GM would get an 11 percent stake in Nikola, a seat on its board and $700 million. Two days after the companies announced the agreement, Hindenburg Research published a scathing report claiming Nikola was mostly smoke and mirrors. The company denied the allegations, but Milton left the company less than two weeks later.

The new deal, a nonbinding memorandum of understanding, is still subject to negotiation, Nikola and GM said in separate statements last week. It more closely resembles a supply contract than an alliance, with Nikola paying GM upfront to cover the capital investment needed for production capacity, according to GM's statement.

GM's hydrogen fuel cell systems will be engineered at facilities in Pontiac and Warren, Mich., and manufactured at the automaker's Brownstown battery assembly plant, also in suburban Detroit.

GM and Nikola declined to share details of their negotiations over the past several weeks, but the Badger was Milton's project. With Milton gone, the new leadership team shifted Nikola's focus to commercial trucks.

David Whiston, senior equity analyst for Morningstar, expects that either GM walked away from the equity stake shortly after the Hindenburg report was published or the two companies were negotiating on GM's equity piece until they agreed on the new deal. GM's revised share target may have been too high for Nikola to accept, Whiston said.

Nikola shares had soared to more than $50 on the original deal before plummeting to less than $20 a few weeks later.

"A lot of this was just horrible bad luck," Whiston said. "You can't fault [GM] for not anticipating the Hindenburg report."

Many of the report's claims predated June, when Nikola went public with funding from a company run by former GM Vice Chairman Steve Girsky. He connected GM and Nikola and has since taken Milton's place as Nikola's chairman.

"When you have a company that you're investing in that has no product, no manufacturing ... that's essentially a pre-revenue technology company, there's is only so much due diligence you can do," Ramsey said. "To a certain extent, you are relying on some level of them being honest with you."

Girsky's stamp of approval — and financial commitment — may have boosted GM's confidence in Nikola, he added.

If GM was too dependent on Girsky's backing, the automaker will likely be more cautious with partnerships in the future, Whiston said.

"If they were lackadaisical about it, I don't think they'll be lackadaisical about it next time," he said.