Nikola (NKLA) and General Motors (GM) continue talks to close on a manufacturing partnership, which a Wall Street analyst called critical to the embattled EV startup’s prospects. Nikola stock rallied.
JPMorgan analyst Paul Coster reaffirmed Nikola stock at overweight with a 41 price target. But that could change “in a hurry” if the company fails to execute to plan, he warned.
“The GM partnership deal is the most important near-term catalyst,” he wrote in a note late Wednesday. “Failure to consummate the GM deal would be a fatal blow for the Badger initiative, but a serious blow to the more important truck initiative too, in our view.”
Coster calls Nikola a “story stock” leveraging higher adoption of electric vehicles. He finds Nikola’s partnership model remains compelling, while noting execution and competitive risks.
“For now, the GM partnership is a stress-test for the company… GM’s withdrawal would be a major collateral blow to Nikola’s time-line, margin structure, and truck brand, ” Coster wrote.
Shares surged 19% to 24.37 on the stock market today after rallying 15% Wednesday despite the missed closing deadline on the GM deal, as management confirmed their strategy and allayed investor fears. Nikola stock has lost more than half of its value since the GM deal was announced, undercutting the 10- and 40-week lines. Tesla (TSLA) rose 2.4% Thursday with Q3 deliveries due soon, and GM gained 2.8% after reporting a less-than-feared 10% drop in Q3 auto sales.
On Sept. 8, GM agreed to take a big stake to help Nikola build the Badger pickup truck and take on the upcoming Tesla Cybertruck and other electric trucks.
GM would get $2 billion in newly issued Nikola stock, paid for by in-kind services and and various General Motors parts and components. GM also would engineer and manufacture the battery and fuel-cell versions of Nikola’s Badger truck.
The partnership was set to close by Wednesday. But several recent developments appear to have put talks in disarray.
On Sept. 10, a scathing report from short seller Hindenburg Research accused Nikola of an “ocean” of fraud and lies. Founder Trevor Milton later resigned as chairman, and two women have since accused him of sexual abuse when they were 15 years of age.
Meanwhile, the short seller report has reportedly led to inquiries by the U.S. Securities and Exchange Commission and Department of Justice. And the Wall Street Journal reported that potential partners are ditching the Tesla rival.
GM continues discussions with Nikola and has said it “will provide further updates when appropriate or required.” That is still pending.
Nikola and General Motors were introduced through Steve Girsky, a former GM vice chair who succeeded Milton as executive chairman at Nikola earlier this month.
The GM-Nikola deal can be terminated by either party on Dec. 3 if the transaction isn’t closed.