General Motors has decided it will see through its recently announced partnership with Nikola even after the company’s embattled CEO, Trevor Milton, stepped down from his post amid allegations of fraud.
The Detroit-based automaker sent out a press release on September 8th, 2020, entitled ‘Nikola and General Motors Form Strategic Partnership; Nikola Badger to be Engineered and Manufactured by General Motors.’ Under the agreement outlined in the release, the electric commercial vehicle manufacturer consented to exchanging $2 billion in newly issued common stock for access to GM’s electric and hydrogen vehicle technology. GM will also build the Nikola Badger electric pickup truck on behalf of the company, with Nikola responsible for marketing and sales of the vehicle.
That deal was quickly called into question when a noted Nikola short-seller, Hindenberg Research, published a lengthy article highlighting the various ways that Nikola mislead investors and exaggerated the capabilities of its products. Milton resigned from Nikola this week due to the allegations in the report, saying he “made the difficult decision to approach the board and step aside,” as CEO to ensure the long-term health of the company. Both the Securities and Exchange Commission and the Department of Justice are now looking into the fraud claims made in Hindenberg Research’s report, as well.
Despite this, GM is eager to see the Nikola deal through to the end, with company spokesman Jim Cain telling Reuters that it plans to “work with Nikola to close the transaction we announced nearly two weeks ago.” This is unsurprising, as GM doesn’t stand to lose much from the Nikola deal either way. The automaker has been looking to achieve economies of scale with its electric/hydrogen vehicle tech and was thus already looking for outside partners to license it to. The $2 billion in Nikola stock it was given in exchange for access to the technology was seen by some investors as more of a bonus.
“I viewed the Nikola shares they were getting as a lottery ticket,” Scott Schermerhorn, a financial analyst, told Reuters this week.
The public image of linking up with an embattled company like Nikola could have an impact on GM’s image, however. In an email sent to Reuters this week, Hindenberg Research said that Milton stepping down was “only the beginning of Nikola’s unraveling,” and warned GM that it should “carefully evaluate the potential long-term damage to its 112 year brand by continuing to tie itself to Nikola.”
GM said previously that the stock exchange between it and Nikola is “subject to customary antitrust regulatory approval and closing conditions,” and that both parties “anticipate closing the transaction prior to Sept. 30, 2020.” The transaction may be affected by the active SEC and DoJ investigations into Nikola, however, so it remains to be seen whether the deal will go through this month.