Detroit: General Motors Co. took a $2 billion equity stake in startup Nikola Corp., agreeing to manufacture its Badger electric-pickup model and diversifying the Detroit-based automaker’s alternate-fuel vehicle strategy.
GM will contribute technology and manufacturing in exchage for an 11% stake in Nikola and get the right to nominate one director to the company’s board, according to a statement. Nikola’s stock jumped as much as 53% before the market open, while GM surged more than 9%.
The two companies expect the truck to start production by the end of 2022.
The partnership gives Nikola - which has yet to generate any meaningful revenue - an immediate boost of legitimacy and the industrial might of an established player while also benefiting GM. The well-established automaker expects to receive more than $4 billion in perks from the deal. In addition to the equity value of the shares, it will be paid to manufacture the Badger, supply batteries and begin commercializing fuel-cell technology for the semi-truck industry.
GM is increasing its exposure to alternate-fuel vehicles, an area that increasingly has captured the attention of investors. The Badger truck could compete against GM’s own electrification plans for future vehicles such as a promised Hummer pickup that goes on sales late next year. The carmaker also may see it as a way to test demand for battery-powered trucks.
In addition, GM gets to keep 80% of the electric-vehicle regulatory credits from sales of the Badger pickup and has right of first refusal on the other 20%. That will help the automaker meet emissions regulations as it focuses on profitable gas-powered sport utility vehicles and trucks.
Nikola pared its pre-market gain and climbed 25.6% to $44.65 as of 9:50 a.m. in New York. Shares of GM rose 4.9% to $31.46. Electric-car market leader Tesla Inc. fell as much as 19.7% amid dashed expectations its shares would be added to the S&P 500.
For Nikola, the partnership with GM is a vindication of its efforts to gain credibility as it moves toward production of its first vehicles. The Phoenix-based company engineered a reverse merger in June, gaining a public listing and more notice for its ambitious plans to enter the market for battery-powered and fuel-cell vehicles. It has garnered its share of fans and skeptics, who founder Trevor Milton has been known to engage with on Twitter, where he has promoted the company and sought to quell critics.
“This news is a huge shot in the arm for Nikola,” Dan Ives, an analyst at Wedbush Securities with a “neutral” rating on the company’s stock, said in a research note Tuesday. “There have been many skeptics around Nikola and its founder Trevor Milton’s ambitions over the coming years, which now get thrown out the window with stalwart GM making a major strategic bet on Nikola for the next decade on the EV and fuel-cell front.”
Milton, who also is Nikola’s chairman, has said the Badger will sell for between $60,000 and $90,000, which analysts say could be a profitable niche in the larger U.S. pickup market. He also has said he hopes the Badger will one day rival Ford Motor Co.’s F-150, which for 43 years has been America’s best-selling pickup.
Nikola will save an estimated $4 billion in development costs by partnering with GM, Milton said in a tweet Tuesday. “Who better than GM to help engineer, validate, test and manufacture,” he said.
As recently as a year ago, Nikola had no plans to build a pickup, just an idea that gelled in November after Tesla unveiled a prototype of its own futuristic electric truck. Nikola first unveiled the Badger in February and started to take pre-orders from buyers in June.
Nikola’s not alone in targeting pickup buyers with a more-sustainable option. Rivian Automotive Inc., an EV startup backed by Amazon.com Inc. and Ford, plans to start producing an electric pickup by June 2021. Ford promises an electric F-150 by 2022, and Fiat Chrysler Automobiles NV has said it is mulling an electrified version of its Ram pickup.
The Badger will be capable of doing 0-60 miles per hour in less than 3 seconds and, depending on the configuration, will have a maximum 600-mile range between charging sessions, according to the company’s website.