Behind The Scenes: How The GM-Nikola Tie-up Came Together

When Steve Girsky made the deal to take Nikola Corp. NKLA public in a reverse merger in March, one of his first calls was to General Motors CEO Mary Barra. He wanted to shop the idea of the automaker working with the electric truck startup on batteries and fuel cells.

As former vice chairman at General Motors Company GM, Girsky knew the company had deep reservoirs of expertise in both technologies. Former GM fuel cell engineers advised Nikola even before Girsky's VectoIQ special purpose acquisition company completed its $760 million reverse merger with Nikola in June.

Badger is catalyst for bigger deal

Business development teams at GM and Nikola held on-and-off discussions about a tie-up. It wasn't until Nikola Executive Chairman Trevor Milton insisted on finding a manufacturing partner for Nikola's Badger electric pickup that things got serious.

By itself, the Badger production gig likely wouldn't have been enough for GM to bother with. Nikola expects Badger sales in the tens of thousands. GM volumes run to the hundreds of thousands. By adding a multiyear agreement to supply Nikola with batteries and fuel cells, the deal worked for GM, which for decades was the world's largest automaker.

Now, after more than 50 years of research dating to the Apollo space missions, GM finally has a commercial path for its joint venture fuel cell with Honda Motor Co. called Hydrotec.

"The deal may change the calculus on fuel cells a bit," Michael Ramsey, automotive and smart mobility vice president and analyst at Gartner Inc., told FreightWaves. "If they find a pathway to market and evangelize fuel cells through Nikola, it could create a more viable market for this technology, which GM has been working on since the late 1960s."

Andrew Card, a former GM vice president of government relations who served under three U.S. presidents, said the automaker deserves its storied history of transportation innovation.

"GM has been a place where ideas are frequently born and then moved to other venues," Card told FreightWaves in an Aug. 6 interview. 

Gaining equity in a disruptor

Getting equity in a disruptive electric vehicle startup like Nikola aligns with GM's own plans to debut 20 new electric models by 2023. 

GM rivals Toyota and Daimler invested early in electric car startup Tesla, Inc. TSLA. Both realized handsome returns from selling their shares. Both had sold their stakes by the time Tesla shares went on an incredible run this year. Despite a pullback since a 5-1 stock split on Sept. 1, Tesla remains the world's most-valuable automaker.

"GM has struggled over time to get outsiders to value its host of technologies and its manufacturing scale in the same way that startups are valued,"  Ramsey said. "This partnership allows GM to leverage its fuel cell prowess and electric vehicle and battery investments in a company that operates outside the normal constraints that big companies operate under."

All in, the deal adds up to about $4 billion for GM. That includes $2 billion in new Nikola stock — about 47.7 million shares priced at $41.93 a share, according to Nikola's 8-K filing with the U.S. Securities and Exchange Commission (SEC). 

Based on Nikola's closing price of $50.05 on Tuesday, GM earned about $391 million on paper. It is locked into holding its Nikola shares for some time. It can sell a third of them after 12 months, another third after two years and the rest in 2025. GM also can nominate a candidate to Nikola's board of directors in 2021.

New Nikola shares dilute but create value

The 47 million new Nikola shares dilute the value of Nikola's 361 million existing shares. The counterargument is that they create value by reducing Nikola's financial risk in developing batteries and fuel cells. Nikola has invested significant resources in both. And GM need not worry about supplying a competitor because it does not build Class 7 and 8 trucks.

Nikola expects to avoid $5 million in engineering, development and validation costs over 10 years. "GM is contributing substantially to Nikola, providing it with a lot of the missing pieces it needs to be viable," Ramsey said.

GM told analysts Tuesday that it sees a market for heavy-duty electric trucks approaching 4 million by 2030. Those are the kind of numbers the formerly world's largest automaker can appreciate.

The automaker lost out in 2019 talks about working with electric pickup and sport-utility vehicle startup Rivian. GM rival Ford Motor Co. invested $500 million and Amazon has led Rivian's recent fundraising rounds.

GM made an early play in autonomous vehicles, paying nearly $1 billion to acquire startup Cruise Automotive in 2016. But fully driverless vehicles are unready for prime time. The pullback in shared transportation due to the coronavirus pandemic is causing some rethinking as well.

Related articles:

GM will supply batteries and fuel cells for Nikola electric trucks

Minting millionaires and building buzz at Nikola

Shell stuffing: How Nikola became VectoIQ's public preference

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