Within 48 hours, the share price of Nikola dropped nearly 40%, after announcing that its promising deal with General Motors is not likely to close.
- Nikola’s bio: Nikola is an electric vehicle startup founded in 2014, with the concept of zero emission vehicles. However, all its concepts remain conceptual until today.
No more Badger
Back to September, General Motors and Nikola were in a good relationship. Under the proposed deal, GM agreed to provide Nikola with technology and manufacturing expertise in exchange for 11% stake, with one common goal: building up electric pickup truck Badger (as you can see in the picture).
However, things didn't go as they wished. Two days after that announcement, Hindenburg Research released a short seller report characterising the Badger pickup truck as an “intricate fraud”.
- Nikola soon admitted that its (first “product”) hydrogen-fueled Nikola One never functioned as it shows in the promotional video. Ex-CEO Trevor Milton was then forced to step down in mid-September.
As a result, there will be no more Badger. General Motors decided to pare down its announced deal to a more modest version: be a battery supplier without any equity holding.
So investors flooded out
On the day of announcing the breaking up (Monday), Nikola’s share price was dragged down by 26.9%. This is almost 65% lower from September, when Nikola announced Badger.
- There is also additional downward pressure on Nikola shares from the Tuesday expiry of the lock up period of 161 mln shares, mainly held by Milton.
But JP Morgan viewed the breaking up positively, claiming that the burst of its Badger dream could allow Nikola to focus on its main business.
Zoom out: If you’re wondering why General Motors invested in such a deal, perhaps it is hoping for the next Tesla.