DJ If the GM Deals Falters, Nikola Would Kill the Badger. That Could Cost Investors Billions. -- Barrons.com
By Al Root
Nikola CEO Mark Russell signaled that the alternative-fuel trucking pioneer would nix plans to produce an electric- and fuel-cell-powered light-duty truck if General Motors walks away from its potential partnership with the start-up.
That could pressure Nikola (ticker: NKLA) stock further.
Nikola investors have been on a wild ride. The stock has been all over the place. It jumped more than 100% on June 8 -- just after the company completed its merger with a special-purpose acquisition company to become publicly traded.
Back then, a tweet from former chairman Trevor Milton announced the company would start taking online reservations for the new pickup truck, called the Badger, on June 29. The plus-100% gain added almost $14 billion to Nikola's market capitalization, and shares closed above $70.
In subsequent months, the stock gave back some of those eye-popping gains, falling back to around $35 before General Motors (GM) and Nikola announced a wide-ranging partnership that included plans for GM to manufacture the Badger truck. GM was to receive an 11% stake in the start-up for providing manufacturing and other services.
Nikola stock jumped 40% on the GM news, hitting $50 a share. That jump added more than $5 billion to Nikola's market cap.
But the GM-Nikola tie up didn't close on schedule, and terms are still being negotiated. After the deal was announced, a short seller's report alleged Nikola misled investors, among other things, sending its stock down about 45% and reducing the value GM was set to receive for its services.
Nikola denies the claims, though Milton voluntarily stepped down in the aftermath of the report.
The situation is very complicated. And Nikola, since its start as a publicly traded entity, always said it needed an auto maker partner to manufacture the Badger. Nikola, for its part, is more focused on building its own heavy-duty-truck manufacturing capacity.
Now if GM walks, leaving Nikola without a partner, the entire Badger program might be nixed. That is what Russell indicated in a recent Bloomberg interview. His comments were confirmed by the company.
Now investors might have a hard time figuring out exactly what no Badger means for the stock.
Shares have jumped by an aggregate $13 billion and $5 billion after previous Badger-related news. Any decline might not approach those levels, but losing the program entirely looks to be a billion-dollar problem.
Consider Lordstown Motor, another EV start-up being acquired by a SPAC. It is launching a light-duty truck called the Endurance. Lordstown is worth $3.8 billion based on the 164 million shares to be outstanding after the merger with DiamondPeak Holdings (DPHC) closes.
That is about 44% of Nikola's market value. How much of Nikola's total market value is tied to the Badger at this point, however, is anyone's guess.
Nikola stock is now down about 25% from just before the SPAC merger was completed. The S&P 500 and Dow Jones Industrial Average, by comparison, are up 13% and 11%, respectively, over the same span.
Barron's wrote cautiously about Nikola shares recently, arguing they were expensive. We didn't see the short-seller news coming. Still, since that article appeared, Nikola stock is down about 22%.
Nikola stock is down 12.8% in recent trading, at $20.32.
Write to Al Root at allen.root@dowjones.com
(END) Dow Jones Newswires
October 16, 2020 10:29 ET (14:29 GMT)
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