Is It Too Late For Investors To Buy NKLA Stock?
As most electric vehicle stocks extended their pullback, shares of Nikola (NKLA Stock Report) surged more than 40% on Tuesday. This came after reports of General Motors (GM Stock Report) taking an 11% stake in the electric truck maker. GM stock didn’t do too badly either, soaring nearly 8% during a stock market downturn.
This is, of course, a huge deal for Nikola. Not only will the strategic partnership allow it to check off a whole bunch of to-do lists, the deal could help save more than $4 billion in battery and fuel cell costs and $1 billion plus in engineering and validation costs for Nikola. In exchange for the 11% stake in Nikola’s stock, General Motors will be paying in services. It will be the exclusive supplier of fuel cells for Nikola’s Class 7/8 trucks outside of Europe.
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The New Partnership Validates Nikola’s Business Model
For existing Nikola shareholders, this deal is the most powerful validation of the company’s business plan and technology thus far. Before this, Nikola appeared to be a company with only promises. Many Nikola bears kept commenting that its revenue came only from installing solar panels for its founder, Trevor Milton.
Nikola had been developing the Badger on its own, but the company decided to rely on GM’s technology instead. After all, General Motors has been in the automotive business for more than 100 years. The accumulated experience and the “know-how” not only in fossil fuel but hydrotec fuel cell technology make GM the perfect match for Nikola’s Badger.
“When we look at the opportunity to continue to leverage our technology — the Ultium battery platform system as well as the Hydrotec fuel cell technology — this is a wonderful validation of our technology, and then bringing our engineering and manufacturing expertise to the table,” GM CEO Mary Barra
General Motors Could Emerge As The Big Winner From This Deal
Some might look at this deal as General Motors providing validation to an electric truck startup. But not all share the same views. In fact, some view Nikola as a symbol of future technology. They believe it is Nikola which is lending credibility to General Motors instead. General Motors has been saying for some time that they have big plans for EV. There are even talks of a potential spin-off in recent weeks. But the market has taken a rather passive approach and adopted a “wait and see” attitude towards the traditional automaker.
GM expects to realize a total of over $4 billion in benefits. These include additional manufacturing scale to its battery and fuel-cell programs. This is in addition to payments from Nikola and tax credits. Of course, the potential appreciation of its Nikola shares could be enormous too.
Nikola has been the poster child for the recent fascination of the market and Silicon Valley with SPACs. We saw the speculation of NKLA stock this year which sent the stock to $90 per share. The market still appears to be optimistic that the electric truck maker will have a rosy future, being one of the pioneers. Now that the partnership has further solidified its business plan, NKLA stock seems like a long term buy to many.
With this deal, GM is taking concrete steps for its EV strategy. This could be a relief to shareholders. On the other hand, Nikola is fortunate to gain instant credibility and secure a quick route to mass production. It appears to me that it is not just NKLA that is worth watching in the long run, GM stock is also equally attractive at this point.