General Motors (GM - Free Report) and Nikola Corporation (NKLA - Free Report) are set to enter into a strategic alliance. Per the partnership, General Motors will aid Nikola in engineering and manufacturing its Badger, a fully-electric and hydrogen fuel-cell electric pick-up truck. As part of the deal, General Motors will acquire an 11% stake worth $2 billion in Nikola as well as the right to nominate one Nikola board member in exchange for its in-kind services.
The new relationship will extend beyond the Badger pick-up truck to include Nikola’s semi trucks as well. General Motors will also be the exclusive supplier of fuel-cell technology and the Ultium battery system to the Phoenix-based start-up’s Class 7 and Class 8 semi trucks worldwide, except Europe. This will mark the beginning of a commercial breakthrough for General Motors.
Nikola has always had the expertise in manufacturing semi trucks using battery or hydrogen fuel-cell technology without carbon emissions but this February it announced its Badger pick-up truck for consumers. Nikola expects to commence production of Badger in late 2022 at a still-undisclosed GM plant location. Additionally, Nikola will be independently responsible for the sales and marketing of the truck, which will retain the Nikola Badger brand. Nikola will exchange $2 billion in newly issued common stock for the in-kind services. General Motors will be subject to a staged lock-up provision beginning in one year and ending in June 2025.
The Detroit-based automaker has already been building electric vehicles, including the GMC Hummer EV and Cadillac Lyriq. The engineering of Nikola’s Badger truck will be the same as those vehicles.
Shares of both companies have surged following the announcement of the partnership. Nikola’s shares appreciated 41% to $50.05 on Tuesday, while General Motors rallied 8%, to $32.38.
Benefits of the Alliance
The latest deal has a two-fold advantage for Nikola. First, it will result in substantial cost savings for the start-up since its Badger truck will be manufactured at a GM plant so it will not have to invest billions of dollars setting up a manufacturing plant. Second, Nikola and General Motors will save up to $4 billion in electric vehicle expenses through this partnership, and the former will be able to bank upon General Motors’ expertise in the EV space and vehicle manufacturing. Nikola will also have access to the automaker’s all-new Ultium battery technology and a multibillion-dollar fuel-cell program. Reportedly, Nikola expects to save a cumulative amount of roughly $5 billion through this collaboration.
This deal is a classic example of tie-up between traditional auto makers and start-up companies trying to bring revolution in the EV space, and underscores General Motors’ commitment to an electric future. It also provides excellent validation to General Motors’ Hydrotec fuel cell technology and the Ultium battery platform system. It is a huge growth opportunity for the automaker as this will expand their presence in multiple EV segments while building economies of scale to lower battery and fuel cell costs, which, in turn, will boost their profitability.
Recently, General Motors entered into a partnership with Uber Technologies, in which it is offering the ride-sharing company's drivers a discount on the purchase of its new Chevrolet Bolt. The drivers will get employee pricing on the Bolt and 20% off on Bolt charging accessories. This partnership is another move by General Motors to expand its share in the electric vehicle market.
Last week, General Motors announced its collaboration with Honda (HMC - Free Report) to create a range of cars to be sold under their respective brand names, and achieve synergy in purchase, research and development (R&D) and other connected services. This alliance has resulted in substantial cost efficiency for both companies and superior vehicle development. Such strategic cartels display the Detroit automaker's ability to aggressively compete with established EV players like Tesla (TSLA - Free Report) , which sells more electric vehicles than any other automaker.
One of the world’s largest automakers, General Motors, currently sports a Zacks Rank #1 (Strong Buy). Nikola currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of General Motors have declined 11.5%, while Nikola’s stock has surged 385%, on a year-to-date basis.
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