General Motors has pushed back the closing date on its pending partnership with Nikola Corp., most likely to renegotiate the terms after Nikola’s stock price has plummeted.
The Phoenix-based electric-truck company faces allegations of fraud, but GM has said it intends to complete the deal with the company.
On Tuesday, GM issued a statement that read: “Our transaction with Nikola has not closed. We are continuing our discussions with Nikola and will provide further updates when appropriate or required.”
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GM was tentatively due to close on a 10-year deal Wednesday. The deal would allow GM to share technology and parts with Nikola in exchange for stock and achieving other cost savings.
But that Sept. 30 closing date was always just an “anticipated” date, according to Nikola’s U.S. Securities and Exchange filing. The filing also said: “The subscription agreement may be terminated by either the company or GM Holdings if the closing has not occurred by December 3, 2020.”
Some analysts have questioned whether GM should do a deal, or at least renegotiate its original deal with Nikola, after a short seller’s report alleged Nikola had committed “intricate fraud” in the past.
Even before that report, Bloomberg had reported that when Nikola showed its Nikola One tractor-trailer in 2016, Nikola falsely said that it was a working prototype even though it was non-running and missing essential parts.
To add to that, recent published reports say Nikola founder Trevor Milton, who resigned Sept. 21, is accused by two woman of allegedly sexually assaulting them when they were under the age of 18. He has denied both allegations.
‘Further mass selling’
“Given how far Nikola’s equity has fallen, Milton leaving, and a fraud investigation, I can’t imagine GM is fine with the original terms of the deal anymore and I suspect they are looking for a lot more Nikola equity,” Morningstar’s David Whiston said. “They may get it too because if GM walks away, then I believe that news would likely cause further mass selling off of Nikola’s stock.”
A GM spokesman declined to comment beyond the statement the company put out Tuesday and GM is providing no new target date for closure beyond the stated SEC filing that provides the Dec. 3 deadline.
Another industry observer agreed with Whiston.
“When GM originally negotiated the deal with Nikola it received stock worth $2 billion. Now, because of improprieties of Nikola’s ex-chairman, the value of that stock has dropped in half,” said John McElroy, host of Autoline.tv. “No doubt GM is renegotiating the deal to make up for that loss. Nikola will likely accede to GM’s demands because to lose it as a partner would be devastating for the startup.”
On Tuesday, Nikola’s stock price was trading at $17.85 at 10:23 A.M. That’s down from $37.57 Sept. 10.
GM leaders have held steadfast to the partnership, announced Sept. 8, with Nikola. GM’s CEO Mary Barra told Wall Street that GM had done thorough due diligence on the company.
In the original deal, which former GM Vice Chairman Steve Girsky helped put together, GM would build the all-electric Nikola Badger heavy-duty pickup, due to market at the end of 2022. Nikola will give GM $2 billion in stock and other cost benefits. GM has the right to nominate one board director at Nikola.
More: GM takes a $2 billion stake in Nikola to make electric pickup trucks
Then there is the key provision in it that allows GM to keep 80% of the electric vehicle regulatory credits generated by the Badger pickup it will make for Nikola, once that pickup starts selling.
The other 20% of the credits will be transferred to Nikola, but GM has the right of first refusal to buy those at current market rates. The credit provisions are especially valuable as environmental regulations stiffen and not meeting them can result in astronomical fines.
Girsky is filling in as chairman of Nikola in the wake of Milton’s resignation.
Now Girsky must quickly find a permanent chairman who has the trust of shareholders, McElroy said.
“He also needs to put a spotlight on Nikola’s CEO Mark Russell and his management team to show there is more to the company than Trevor Milton,” McElroy said. “Nikola also needs to publicly demonstrate its technology as GM did with its EV Day and Tesla did with its Battery Day. Nikola needs to prove to the public that it’s more than smoke and mirrors.”
GM’s other partners
GM has said it will bring at least 20 new electric vehicles to market by 2023. To make that happen in the most cost-effective way, GM is making many partnerships.
Just days before announcing its deal with Nikola, GM said it had signed a nonbinding memorandum of understanding with Honda to establish a North American automotive alliance. The two will share vehicle platforms and technology in North America starting next year.
In April, GM and Honda said they will jointly develop two all-new electric vehicles for Honda that will be on GM’s global EV platform powered by GM’s Ultium batteries, but Honda will design the vehicle exteriors and interiors.
In July, GM announced it was partnering with EVgo, the largest public fast-charging network for electric vehicles, to triple the size of the U.S. public fast-charging network.
All these partnerships will eventually benefit consumers.
“The huge savings for both (sides) can be used to roll out future electric vehicles at much lower price points and stimulate demand further, leading to even lower unit costs over time,” said David Leggett, Automotive Analyst at GlobalData, a data and analytics company. “The key is to share the very high development costs for this advanced technology and get prices for consumers down.”
But none of GM’s other partnerships have been fraught with negative press like Nikola has encountered.
On Sept. 10, a report by Hindenburg Research accused Nikola of being an “intricate fraud.” Nikola disputed the allegation, but federal authorities are investigating it.
A day after his resignation, Milton’s Twitter account @nikolatrevor was deleted. His spokesman declined to comment on it.
More: Ex-Nikola CEO mysteriously vanishes from social media after abrupt resignation
Milton agreed to hand over about $166 million of equity and a two-year, $20-million consulting contract as part of his resignation, but he keeps $3.1 billion in stock, according to an SEC filing.
Girsky, having facilitated the deal with GM, has said he is putting his reputation on the line with it, insisting his team at investment firm VectoIQ had vetted Nikola thoroughly before presenting a deal to GM.
VectolQ has injected $700 million in Nikola and oversaw its public listing. Requests to interview Girsky are pending.
More: If Nikola goes up in flames, GM might only get singed, analysts say
This article originally appeared on Detroit Free Press: GM pushes back contract signing with Nikola as it likely renegotiates