'Best-In-Class Powertrain Technology Affirmed': Analysts React To GM-Nikola Partnership

Shares of General Motors Company GM and Nikola Corporation NKLA rallied on Tuesday after GM announced it's taking a $2 billion stake in the hydrogen fuel cell electric truck maker. As part of the companies’ new partnership, GM will produce Nikola’s first Badger truck model starting before the end of 2022.

GM now has an 11% ownership stake in Nikola and will have the right to nominate one Nikola board member. GM will also supply Nikola’s fuel cells in every market other than Europe, and Nikola will use GM’s Ultium battery platform system.

In an interview on CNBC, GM CEO Mary Barra said the deal with Nikola is a “wonderful validation of our technology” as the company competes for market share in the next-generation EV and autonomous auto market.

Affirmation Of GM Technology: Deutsche Bank analyst Emmanuel Rosner said the Nikola deal is finally forcing investors to start realizing some of the value in GM’s leading EV technology.

“We view this deal very positively for GM as we believe the unit economics are very favorable for the automaker (high margins and ROIC), and the partnership further positions its Ultium battery as a scalable industry wide platform that can pool together large volumes from several OEMs to improve costs,” Rosner wrote in a note.

Bank of America analyst John Murphy said the partnership “affirms GM’s leading powertrain technology.”

“Despite a still challenging macro backdrop, GM's core business is being managed very well, with a laser focus by management on the company’s most profitable franchises (trucks, SUVs, CUVs, North America, China), decisive actions to address underperforming segments (GME sale, restructuring in Korea/China), and ongoing execution of the company’s longer-term product/business vision, with the NKLA partnership being just the latest example,” Murphy wrote.

CFRA analyst Garrett Nelson said the Nikola deal is a bullish signal that GM’s balance sheet is healthy despite a difficult auto environment, but GM’s auto sales likely won’t be returning to pre-crisis levels anytime soon.

“Overall, we think the partnership makes sense and should be mutually beneficial to both parties,” Nelson wrote.

Instant Credibility For Nikola: Wedbush analyst Daniel Ives said the GM deal is a game-changer for Nikola.

“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,” Ives wrote.

RBC Capital Markets analyst Joseph Spak said Nikola is now positioned to reach full Badger production capacity of around 50,000 vehicles per year in 2024.

“[The] strategic partnership not only brings Badger to serial [production], but increases investor confidence in NKLA's plan while de-risking [its business] model through another strong partnership,” Spak wrote.

Ratings And Price Targets:

• Deutsche Bank has a Buy rating and $33 target for GM.
• Bank of America has a Buy rating and $60 target for GM.
• CFRA has a Sell rating and $20 target for GM.
• Wedbush has a Neutral rating and $45 target for Nikola.

RBC Capital Markets has a Sector Perform rating and $49 target for Nikola.

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