Nikola deal boosts General Motors’ EV credentials
GM’s truck-making tie-up with the Tesla rival is a sound move, says Morningstar’s David Whiston.
Morningstar has increased its fair value estimate for General Motors after its deal with startup electric truckmaker Nikola.
Under the deal, GM (GM) will make a new electric-pickup model with Nikola (NKLA), contributing technology and manufacturing in exchange for an 11 per cent stake and the right to nominate a director.
Morningstar equity strategist David Whiston applauded the deal and raised his fair value for GM by US$2 to US$50. The stock is trading at a 35 per cent discount to fair value.
“We like the deal as Nikola needs GM’s battery and hydrogen technology, manufacturing abilities, and supply chain expertise, while GM gets an investment in a firm, for zero cash up front, with a long growth runway and a new battery and fuel cell customer,” Whiston said in a note following Tuesday’s announcement.
“Nikola is primarily a heavy-truck maker but also has an all-electric pickup truck in development, the Badger, due out by the end of 2022.”
GM’s stock surged as much as 10 per cent on Tuesday after the automaker announced it is receiving US$2 billion of stock in Nikola, a publicly traded hydrogen and electric vehicle maker, for no up-front cash spending. The 11 per cent stake consists of nearly 47.7 million shares at US$41.93 each.
GM (GM), Nikola (NKLA), Tesla (TSLA) – 1 day
Source: Morningstar Premium
GM will also appoint one member of Nikola’s board. GM expects to realise over US$4 billion in benefits via manufacturing contracts, the value of the Nikola stake, and the sale of electric vehicle credits.
In return for the Nikola shares, GM will supply Nikola with batteries, a chassis architecture, fuel cell systems and a factory to build the startup’s proposed Nikola Badger pickup. GM will also supply fuel cell technology for Nikola’s planned Class 7 and 8 commercial tractor-trailers.
Shares of Nikola soared more than 48 per cent to US$52.94 after GM’s investment, giving GM a paper gain of more than US$500 million on its investment. GM’s expected US$4 billion gain from the deal includes US$700 million for building the Badger at one of its factories, and the value of regulatory credits for a zero emission vehicle.
GM chief executive Mary Barra also said the Detroit company may supply other companies with its Ultium electric battery and hydrogen fuel cell technologies, Reuters reported.
“We are certainly open to consider additional deals as it relates to both Ultium and the fuel cell Hydrotec technology,” she told reporters on a conference call.
GM cited the Hydrogen Council’s estimate of 3 million-4 million hydrogen trucks and vans by 2030. Barra indicated that GM is open to other customers beyond the already announced supply agreements with Nikola and Honda.
Nikola is primarily a heavy-truck maker but also has an all-electric pickup truck in development, the Badger, due out by the end of 2022. Source: Nikola
Morningstar’s Whiston said the deal marked a turning point in GM’s hydrogen fuel cell technology and hinted at possible military and aerospace uses.
“We are glad to see GM’s hydrogen fuel cell technology finally moving beyond the experimental stages that it’s been in for over a decade.
“Barra talked about a multi-billion-dollar total addressable market for fuel cells and GM’s slide presentation showed possible examples in aerospace, sea vessels (which we think may be a reference to possible scientific and US military applications), energy storage, and large vehicles such as trucks and buses.
“The Nikola news shows GM is not only willing to invest in a competitor startup but looking to be a battery and fuel cell maker in addition to an automaker, so we like the move.”
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The alliance with Nikola is the second major deal in a week for GM and highlights the pressures faced by the auto industry to share costs to meet demands for cleaner vehicles. Last week GM announced a North American alliance with Japan’s Honda Motor Co.
GM’s first electric pickup truck, the GMC Hummer, is due in late 2021. GM will build the electric and fuel cell versions of the Nikola Badger truck and the companies expect production by the end of 2022.
Nikola will buy GM’s fuel cell systems for its Class 7 and Class 8 semi trucks. That deal runs for four years after start of production of those vehicles at a Nikola plant outside Phoenix and is exclusive except for the European market.
GM under the deal also will receive EV credits, a key factor as most of GM’s vehicles are still gasoline-powered.
The Nikola truck will compete with Tesla’s Cybertruck, as well as electric pickups planned by startup Rivian, Ford Motor Co and GM itself.
Tesla (TSLA) plunged 21.06 per cent to suffer its biggest daily percentage drop as the electric-car maker was excluded from a group of companies being added to the S&P 500. Investors had widely expected its inclusion after a blockbuster quarterly earnings report in July. Up to Friday’s close, the stock had surged about 400 per cent this year.
Additional reporting: Reuters
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