Nikola's Bad Quarter: Company's Deal For General Motors Ownership Stake Goes Sideways

from the fallout dept

The trouble for Nikola Motor Company began only in September, a couple of months ago. That's when a hedge fund very publicly called out the company and its founder, Trevor Milton, for essentially fooling people with doctored video of its electric semi-truck product to get them to invest in the company. This led to rumors of federal investigations, the resignation of Milton, and the company idiotically trying to use copyright takedowns to silence its critics. All of this was likely in the service of trying to save a very public $2 billion deal with General Motors that was due to be closed upon in early December.

Well, what was Nikola's bad month is turning into a very bad quarter, as the General Motors deal has gone fairly sideways.

Nikola (NKLA) won’t have General Motors (GM) as an investor, at least for right now.

The electric truck maker said on Monday it has revised the terms of a prior deal with GM, and that the auto giant won’t be taking a stake in Nikola. The two companies will not work together to produce Nikola’s pickup truck, the Badger. Nikola’s shares were down more than 21% in pre-market trading.

The Badger was supposed to be a consumer pickup truck made in partnership with GM, utilizing GM's manufacturing and logistics operations alongside Nikola's electric batteries and drivetrain. But now, the general consensus is that this deal going under with GM has rendered the Badger completely dead.

EV and hydrogen truck start-up Nikola's deal with General Motors has fizzled, the EV startup revealed, after several weeks of speculation about a deal that would have seen the Michigan auto giant produce the Nikola Badger truck. Nikola indicated that it had reached a non-binding memorandum of understanding with GM regarding collaboration on GM's hydrogen technology for large trucks, but that the pickup aimed at private consumers was not currently contemplated with GM backing. In fact, the Badger now appears entirely dead, with Nikola indicating that it will refund deposits for the EV truck.

For its part, Nikola is pointing to the deal with GM not being completely dead. Instead, the company is going to focus on producing semi-trucks that GM will make the fuel-cell technology for. The deal is now essentially a basic supply partnership, but the real impact of the change of deal terms is that GM has backed away from taking an ownership stake in Nikola.

But Dan Ives of Wedbush Securities writes in a new note that the “headline” from the new agreement is that GM won’t be taking a stake in Nikola — and that news “will be viewed as a clear negative.”

“This went from a game changer deal for Nikola to a good supply partnership but nothing to write home about and the Street will be disappointed accordingly along with lingering lockup worries,” Ives wrote.

All because the company's founder wanted to pretend like it had a produced a product that did something that it absolutely did not. It sure seems like it would have been better for the company overall if it had just told the truth.

Filed Under: badger, copyright, electric trucks, investment, trevor milton
Companies: general motors, nikola

Nikola Is Having A Bad Month: GM Contract Now Potentially In Jeopardy

from the it-pours dept

Nikola Motor Company, to put it mildly, is having itself a bad month. First came the bombshell reports from a hedge fund that founder Trevor Milton lied in 2016 when he told the world that the company had a fully functional Nikola 1 electric semi truck. Worse than that, it was revealed that a promotional video in 2018 showing the truck rolling down a lonely highway, was actually showing a Nikola 1 rolling down a hill, since the truck couldn't actually move under its own power. Milton resigned after those reports, but the hits kept coming. Two women have come forward claiming that Milton inappropriately groped them when each was fifteen, with one of those women being his cousin. For the record, Milton has denied both allegations.

But the fallout appears to be continuing. September 30th was supposed to be the date by which Nikola's notable contract with General Motors was to have closed. That deal appears to be in limbo, however, with regulatory filings indicating that both sides now have until December to sign the deal or terminate it.

A GM spokesman confirmed the delay in an email to Ars. "Our transaction with Nikola has not closed. We are continuing our discussions with Nikola and will provide further updates when appropriate."

Also this morning, Nikola published a revised overview of the company's business strategy. It discussed Nikola's plans to manufacture semitrucks in Europe and the United States, build a network of hydrogen fuel stations, and even plans for an electric all-terrain vehicle. But conspicuously missing from the document was any mention of the Badger pickup truck—the one that GM was supposed to manufacture for Nikola under the now-delayed partnership.

Nikola also announced today that it was indefinitely postponing Nikola World, the December event where Nikola was planning to debut the Badger. Nikola blamed the COVID-19 pandemic and related social distancing rules for the delay.

So a lot of bad, without a lot of clarity as to the reasons for any of this. In the absence of clear communication, speculation is the sport of the day. Some are suggesting that GM doesn't want to be associated with the company right now, with all of the bad PR currently in play. Others are noting that the deal between Nikola and GM is very much one-sided in favor of GM, but the recent issues have lowered the value of the deal. The chief example of this is that GM was to be paid by Nikola in stock worth $2 billion at the time the deal was written. In the last month, Nikola's stock price has dropped such that the value of that stock is now less than $1 billion. So, part of this might be GM now trying to negotiate for better terms that reflect the original deal.

Either way, while the risks in the deal for GM are small, the reputational risks are very, very real.

So the financial risk for GM was quite small. GM wasn't putting any money into Nikola. GM was supposed to do engineering work on the Badger in exchange for those Nikola shares, but if Nikola failed GM would likely be able to repurpose some of that work for use in a future GM-branded electric pickup truck.

But the deal also creates some reputational risk for GM. If, hypothetically, more evidence of fraud or other misconduct came to light that led to Nikola's failure, GM could be tainted by association even if its financial exposure was small. GM's name wouldn't be on the Badger pickup truck, but customers would know GM manufactured the truck, and some of them might blame GM if the Badger didn't work well.

Which brings us back to our original post on Nikola, the theme of which is that you cannot risk your reputation like this. Chances are, you're going to get found out and, when you do, the consequences will vastly outweigh any benefit you get from your fuckery.

Filed Under: electric trucks, trevor milton
Companies: gm, nikola