We said back in July to buy the dip in Nikola when the stock dropped to $29. Our write-up, which has since been updated, you can read here. We said:
Over the next one to two years, we believe Nikola stock will continue making new highs. The story is there. Market demand exists. The market potential is enormous. Buckle up and enjoy the hydrogen lift-off in Nikola stock.
Our thesis just got validated after Nikola signed a deal with GM that is a game-changer all around. The deal really silenced the critics and short sellers that have been badgering founder Trevor Milton, who had this to say on Twitter.
As we dive in, the bear camp just got destroyed with this news, and Nikola stock looks set to climb back towards the highs on this Nikola GM news. In this article, we look at the Nikola GM deal and why it’s a win-win for both Nikola and GM.
Before we get into our analysis, here’s a little background info for those that aren’t familiar with. On June 4th, electric heavy-truck maker Nikola began trading on the Nasdaq after its merger with VectoIQ (VTIQ) was approved by shareholders. The IPO provided Nikola with more than $700M in new cash, much of it from a transaction involving Fidelity Investments and P. Schoenfeld.
Founded in 2014, the company has developed a series of all-electric Class 8 trucks that can be powered by batteries or hydrogen fuel cells. It has over 14,000 preorder reservations for the trucks, representing more than $10B in potential sales.
Nikola announced that General Motors will be its strategic manufacturing partner. The partnership will begin with the Nikola Badger and will carry cost reduction benefits across other models.
Nikola will utilize General Motors’ Ultium battery system and Hydrotec fuel cell technology, in what is said to be a key commercialization milestone for GM.
Nikola will exchange $2B in newly issued common stock for the in-kind services and access to General Motors’ global safety-tested and validated parts and components. Here’s Nikola’s 8-K, detailing the sale of 47.7M shares of common stock to GM for $41.93 each. GM will own 11% of Nikola at closing (expected September 30).
General Motors will be subject to a staged lock-up provision beginning in one year and ending in June 2025. General Motors will engineer, homologate, validate and manufacture the Nikola Badger battery electric and fuel cell versions.
Why The Nikola GM Deal Is A Game-Changer
Wedbush Securities analyst Dan Ives sees significant upside from the announcement that Nikola will partner with GM.
“This news is a huge shot in the arm for Nikola and cements credibility not just for its Badger production slated to begin by the end of 2022 but for its hydrogen fuel cell ambitions and semi truck vision going forward,” writes Ives.
He notes that there have been many skeptics around Nikola and its founder Trevor Milton’s ambitions over the coming years, which could now be thrown out the window with stalwart GM making a major strategic bet on Nikola for EVs and fuel cells.
“For GM given its strategic goal around EV battery technology for the coming years and its massive $20 billion of investments earmarked for electric and autonomous vehicles by 2025, we view this as a smart strategic bet at the right time.”
Reasons To Be Bullish On Nikola
- The Nikola GM deal benefits both sides. Nikola expects to save $4 billion in manufacturing costs and $1 billion in engineering costs. GM expects to get $4 billion in benefits from manufacturing the Badger, among other factors.
- Nikola’s execution post-IPO has been phenomenal. They’ve ordered electrolyzers for 5 new H2 stations related to the Budweiser deal. The company has fully demonstrated its semi-truck, even 0-60 mph in 5 secs, which put to bed all operational issues.
- Nikola also initiated Iveco JV and TRE production from Germany, and fully answered and confirmed the power purchase arrangement for their stations. The company possesses a rock-solid management team and dream partnerships, with plenty of cash to hit milestones.
- Nikola has almost $1 billion in cash.
- Nikola broke ground on its greenfield manufacturing facility in Coolidge, Arizona. Once completed, the Coolidge manufacturing facility will be capable of producing up to 35,000 trucks per year at full capacity on two shifts. Phase one of this construction is expected to be complete by Q4 2021.
- Nikola will begin fleet testing Tre BEV units in 2021 with select customers and partners. The company says the data received from the fleet testing program will be critical as it moves toward low volume production of the Nikola Tre BEV.
- Nikola expects to announce a large BEV truck order (pre-order) from a major customer.
- We expect significant announcements regarding partnerships/contracts that lock in low-cost green electricity and provide customers and investors with the reassurance that the $3.50/kg cost of hydrogen can be realized.
- Nikola has an order from trash hauler Republic Services for 2.5K electric garbage and recycling trucks. The Tre model trucks will reportedly have a range of 150 miles and the capacity to handle 1.2K residential trash cans on a single charge.
- The Nikola Tre will be available for production and sale by the end of next year. Prototypes will be finished by the end of this month.
- The Nikola Two hydrogen fuel cell truck will be in the hands of Anheuser-Busch InBev by the end of next year.
- Further down the road, a refuse truck will be built with a partner for delivery in 2023.
- We see greater opportunity in fuel-cell trucks for medium and long-hauls, which we don’t anticipate can be solved with electric batteries.
- Over 12% of the float is short.
- Check out the Nikola Two!
The Nikola GM deal is a game-changer for the company and one that will send shares to new highs. GM just destroyed the bear thesis and provides immense credibility to what Trevor Milton is working to achieve. Nikola is a rare pure play on zero-emission commercial trucks, whose adoption is poised to take off, driven by global regulations. Its fuel-cell solution which bundles electric truck, hydrogen fuel, and full service and maintenance in one contract priced at a lower cost of ownership than traditional trucks, is attractive to fleet operators and will generate solid revenue for Nikola and attractive returns throughout the life of the vehicle. With GM working on the Badger, we expect Nikola’s Badger to be on the road much sooner than many expect.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in NASDAQ:NKLA or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.