It’s time to make a decision
regarding his agreement with
the alternative fuel heavy trucking business.
The pair announced a major deal on September 8. General Motors (ticker: GM) is set to receive an 11% stake in Nikola (NKLA) for its manufacturing and engineering support, and will also help start-up manufacturing and engineering as as supply parts, in exchange.
“Our transaction with Nikola has not been closed,” said GM Barron’s. “We are continuing our discussions with Nikola and will provide additional updates as appropriate.” Nikola said the same thing.
On September 10, two days after the deal was disclosed with GM, short seller Hindenburg Research released a negative report on Nikola, alleging, among other things, that Executive Chairman Trevor Milton misled investors about the technology. developed by the truck manufacturer. Nikola denies these claims. Milton left the company on September 21, saying he hoped to allow investors to focus on the company he founded and its technology, rather than on him.
For Nikola’s investors, the result looks like a binary event. It would be positive if the deal goes through, while an outage would be very negative. The options markets imply that Nikola shares will move more than 35%, up or down, by mid-October. Options on
(TSLA), another volatile stock, implies a movement of around 15% over the same period.
Since the publication of the Hindenburg report, Nikola shares have been trading between 50% and 60% below their previous level. The largest drops came after Milton decided to leave the company.
On September 14, before Milton’s departure was announced, General Motors CEO Mary Barra assured investors her company had done due diligence on the deal, meaning GM understands Nikola’s technology. .
Wall Street seems to believe the deal will be done. JP Morgan analyst Paul Coster wrote after the Hindenburg report, but before Milton’s exit, that he expected the deal to be done. Cowen analyst Jeffrey Osborne pointed out after Milton left that the new chairman of the board, Stephen Girsky, is a former GM executive. (He also worked as an automotive analyst at Morgan Stanley.)
Coster and Osborne attribute to Nikola the equivalent of Buy. Coster has a target of $ 41 for the share price, more than double Wednesday morning’s level of $ 17.75. Osborne estimates the shares are worth $ 79.
The terms of the agreement may overlap. The original deal gave GM an 11% stake in Nikola in return for GM’s expertise. It was a coup for GM that helped shift investor views on the century-old automaker’s battery and fuel cell technology.
But the value offered by Nikola, measured by the price of its share, is falling significantly. Still, companies typically don’t renegotiate long-term agreements based on every tick in the market.
Nikola stock has remained up around 68% since early March, when the company announced its intention to go public by merging with a special purpose acquisition company, or SPAC. This is much better than the comparable gains of
Dow Jones Industrial Average
GM’s stock is down 2.2% from levels just before the Nikola deal. It has fallen by around 20% since the start of the year.