Shares of Nikola (NKLA) are under pressure after the company and General Motors (GM) announced the signing of a non-binding Memorandum of Understanding, with the latter no longer taking an equity stake in the electric-truck maker. GM still intends to provide Nikola with fuel-cell technology but has scrapped plans to build an electric pickup truck named the Badger for the startup. Commenting on the news, Wedbush analyst Daniel Ives said he expects the new GM deal to be viewed "as a clear negative to the Street." More bullish on Nikola, his peer at JPMorgan believes the pullback could be a good buying opportunity.
REVISED GM DEAL: Nikola announced the signing of a non-binding Memorandum of Understanding with General Motors for a global supply agreement related to the integration of GM's Hydrotec fuel-cell system into Nikola's commercial semi-trucks. This supersedes and replaces the transaction announced on September 8, 2020. 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. The MOU does not include the previously contemplated GM equity stake in Nikola or development of the Nikola Badger. As previously announced, the Nikola Badger program was dependent on an OEM partnership. Nikola will refund all previously submitted order deposits for the Nikola Badger.
Nikola has also filed a prospectus supplement relating to the issuance of up to an aggregate of up to 23.89M shares of common stock. The prospectus supplement also relates to the offer and sale from time to time by the selling security holders of up to 53.39M shares of common stock. The filing occurred after Nikola's prior agreements with General Motors were terminated.
NEW DEAL DISAPPOINTS: Commenting on the revised deal, Wedbush analyst Daniel Ives told investors that the headline from Monday's announcement is that "surprisingly" GM will not be taking an equity and ownership stake in Nikola as previously planned. This will be "viewed as a clear negative to the Street" hoping that the 11% ownership piece of the original deal stayed on course, Ives added, arguing that no ownership/equity stake in Nikola and "billions of R&D potentially now off the table is a major negative blow to the Nikola story." The analyst, who added that the agreement "went from a game changer deal for Nikola to a good supply partnership, but nothing to write home about," keeps an Underperform rating and $15 price target on Nikola shares.
PULLBACK COULD BE GOOD BUYING OPPORTUNITY: Also commenting on the news, JPMorgan analyst Paul Coster said he thinks this is a positive outcome for Nikola over the medium to longer term, since the company can now focus on the core Class 8 truck initiative and "avoid the distraction" and capital expenditures associated with the Badger pickup. Nonetheless, he acknowledged that GM's commitment seems much more modest, which might weigh on investor sentiment. The analyst believes a pullback could be a good buying opportunity, keeping an Overweight rating on Nikola shares.
PRICE ACTION: In morning trading, shares of Nikola have dropped over 27% to $20.37, while GM's stock has slipped about 3% to $43.90. Some other electric car and truck makers, including NIO Inc. (NIO), Xpeng (XPEV) and Workhorse Group (WKHS), are also trading lower this morning.
