Alternatively fueled vehicle startup Nikola Corp. (NKLA, Financial) finds itself deep in negotiations with General Motors Co. (GM, Financial) as the future of the Badger pickup truck initiative swings in the balance.
At the beginning of September, the fresh-faced Nikola found itself coming to an agreement with automotive giant GM to take an 11% stake in the company and help build the newly announced Badger pickup truck. In exchange for both development and manufacturing, General Motors was set to receive $2 billion in approximately 48 million new shares valued at $41.93 each.
Shortly after the announcement, negative allegations of fraud from a short seller put Nikola and its founder, Trevor Milton, under the watchful eye of the public and the Securities and Exchange Comission. The company would eventually settle on Milton stepping down as chairman.
Unfortunately for the deal, share prices took a steep dive after widespread coverage of the negative allegations. At current prices, the value of the deal is much lower for GM than expected, yet both parties maintain the ability to walk away from the deal until Dec. 3 without any repercussions. However, a recent press release from Nikola laying out its future plans has led to a small resurgence in the stock.
As for moving forward with the deal, GM has all the power to negotiate better terms. Currently, it has no money invested and maintains the ability to request a larger stake in the company or request that Nikola issue warrants that would further boost its stake if Nikola can raise more money.
While the partnership would allow GM to place its name on a product that directly competes with Tesla's (TSLA, Financial) Cybertruck, certain terms already settled upon provide additional bonuses. One agreed upon term is that GM would receive 80% of the zero-emission vehicle (ZEV) credits that the Badger sales generate.
The ZEV program is currently run by the California Air Resources Board and has been adopted by several other states. Under the program, automakers are required to offset a certain percentage of non-electric vehicle sales by selling zero-emission vehicles. With the credits generated by the Badger pickup truck, GM would be able to maintain its required amount of ZEV credits in these states without having to directly sell additional zero-emission vehicles.
Nikola began building steam for the Badger program by taking deposits for the truck at the end of June. It had an official reveal date set for December, during the NikolaWorld 2020 conference that has been indefinitely postponed.
The Badger initiative was the icing on the cake for GM as the partnership revolved around the manufacture and supply of batteries and fuel cells for Nikola's heavy trucks. Should GM back out of the deal, Nikola will watch its progress fizzle to a standstill and the proposed timelines will become improbable at best.
Disclosure: Author owns no stocks mentioned.
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