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posted on 2020-09-30 18:23:00 .
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When Nikola and GM announced a partnership on September 8, GM said it expected the deal to close by September 30. Now September 30 has arrived, and the deal hasn’t closed. Media reports indicate that the deal is unlikely to close today.
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.
I asked a Nikola spokeswoman if we should read anything into the fact that the Badger wasn’t mentioned in its new strategy document.
“No, considering the executives remain in active negotiations,” she responded by email.
Perhaps GM’s deal with Nikola has simply been delayed for a few days. But at a minimum, the future of the partnership—and the Badger—remains unclear.
Nikola is having a bad month
Two days after the GM deal was announced, a short-selling firm revealed that Nikola had never gotten its Nikola One prototype to work, despite founder Trevor Milton’s 2016 claims that it “fully functions.” Nikola was forced to admit that a 2018 promotional video showed the truck rolling down a hill, not moving under its own power. Milton resigned from Nikola and is now facing two accusations of sexual misconduct.
Media reports last week indicated that the fraud allegations have made it more difficult for Nikola to find a partner to help build and run its planned network of hydrogen fueling stations. Now Nikola’s deal with GM seems to be in jeopardy as well.
The terms of the original deal announced on September 8 were very favorable to GM. Nikola was supposed to give GM $2 billion in Nikola stock—worth less than $1 billion today thanks to Nikola’s falling stock price—in exchange for a license to GM’s intellectual property, engineering assistance to incorporate GM’s technology into Nikola’s trucks, and “access to GM’s validated parts and components,” including GM’s battery platform.
In addition, Nikola was supposed to pay GM up to $700 million to reimburse costs to build out manufacturing facilities for the Badger. Then Nikola was supposed to pay GM to manufacture the Badger on a cost-plus basis.
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.
We don’t know why negotiations over the deal have dragged on. It seems most likely that GM is pressing Nikola for more favorable terms. Perhaps GM is seeking more shares of Nikola to compensate for the sharp decline of Nikola’s share price since the September 8 announcement. Or GM might be pushing for stronger protections—like upfront payments—to make sure GM wouldn’t be hurt by Nikola’s failure.
On the other hand, it’s possible that Nikola is the one pushing for changes. Perhaps Nikola’s new leadership concluded that Milton rushed into a deal that was tilted too far in GM’s favor. Or maybe Nikola is having second thoughts about the entire Badger project. Perhaps Nikola would be better off scrapping the Badger and focusing on building hydrogen-powered semitrucks.
September 30 isn’t a hard deadline. According to Nikola’s regulatory filing about the deal, the transaction can be terminated by either party if it hasn’t closed by December 3. So talks between the companies could drag on for another two months.
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