By Ben Foldy and Mike Colias 

General Motors Co. will no longer take an equity stake in electric-truck maker Nikola Corp. under a stripped-down agreement revealed Monday, a significant retrenchment from an earlier pact that fueled investor enthusiasm for both companies.

Under the revised deal, GM still intends to provide Nikola with fuel-cell technology but it has nixed plans to take an 11% stake in the Phoenix-based startup in exchange for supplying engineering work and other services.

The Detroit auto maker has also scrapped plans to build an electric pickup truck called the Badger for Nikola, a key part of an earlier agreement outlined in September. That deal got delayed after a negative short seller's report raised questions about the readiness of some aspects of Nikola's business, allegations the company said were false and misleading.

The original agreement bolstered Nikola's status as one of several highflying green-vehicle startups drawing attention from Wall Street. GM's lending of its engineering and manufacturing expertise, and being granted a spot on Nikola's board as part of the now-scrapped tie-up, had been seen as a validation of Nikola's business model and growth prospects.

For GM, the Badger piece of the deal had been seen as a boost for its broader plans to license its electric-vehicle technology, the potential of which has helped lift its share price in recent weeks. GM was to engineer and build the light-duty pickup truck for Nikola, using its proprietary battery system that will be used in many planned GM models.

Nikola shares closed down about 26.9% Monday. GM shares lost about 2.7%.

The scaled-back deal with GM is a blow to Nikola, whose strategy involves striking alliances with other deep-pocketed companies to collaborate on various parts of its business, analysts say. "GM essentially no longer wants to be tied to Nikola's longer term output," Emmanuel Rosner, an analyst at Deutsche Bank, wrote in a note Monday.

Nikola revealed the revised deal with GM a day ahead of a lockup period expiring for some early investors who got shares as part of the startup's June listing. Starting Tuesday, those investors can start selling off approximately 161 million shares -- the majority of which are owned by founder and recently departed Executive Chairman Trevor Milton.

A spokesman for Mr. Milton declined to comment.

While Nikola has yet to sell a single vehicle, its plans to revolutionize the trucking industry with electric and fuel-cell technology have excited Wall Street investors. In June, Nikola's market value briefly surpassed that of Ford Motor Co., after Mr. Milton tweeted that the company would begin taking reservations on the Badger and show a working truck by the end of 2020.

The stock jumped again in September on the news of the GM partnership but was slammed days later after a report from short seller Hindenburg Research alleged Mr. Milton had made exaggerated claims about Nikola's technology. Mr. Milton, who has said he would defend himself against the report's allegations, stepped down in September.

Nikola disclosed earlier this month that it had received subpoenas from the Securities and Exchange Commission and U.S. Justice Department in September regarding its business.

Nikola has said it is cooperating with the investigations. The SEC and Justice Department declined to comment.

At the start of the year, the Badger had existed as little more than concept sketches, two current Nikola employees said. But Mr. Milton's desire to make a consumer-oriented pickup truck that could compete with Ford and Tesla Inc. led Nikola to pursue a more expansive deal with GM, said people familiar with his thinking.

GM executives were receptive to the idea of making a truck powered by hydrogen fuel cells, a concept it had already developed for the military, said people familiar with the talks.

The Badger eventually became core to discussions between Nikola and GM, along with plans for GM to supply hydrogen fuel cells and batteries to Nikola for its commercial trucks, the people said.

In early September, Nikola said it would give GM an 11% equity stake and pay it $700 million to develop and manufacture the Badger. That was two days before Hindenburg released its report criticizing Nikola. The report put GM executives on the defensive, leading them to respond to questions about why the car company hadn't done more due diligence on the startup.

The controversy irritated GM Chief Executive Mary Barra, according to people familiar with her thinking.

On a phone call in late September, Nikola new chairman and former GM executive Steve Girsky explained to Ms. Barra that the board was taking the allegations seriously and conducting its own internal investigation, said a person with knowledge of the call.

When both companies returned to negotiations, it was clear that Nikola executives had cooled on the Badger, said the people familiar with the discussions.

Nikola CEO Mark Russell has said he is determined to refocus the business on bigger commercial trucks and semis.

The companies on Monday also said they would explore the use of GM's electric-vehicle battery technology, called Ultium, in future commercial trucks.

If the agreement outlined Monday comes to fruition, it would mark the first commercial use of GM's hydrogen fuel cells, a technology it began developing in the 1960s. The technology uses onboard fuel cells to mix hydrogen and oxygen to produce electricity, which drives the vehicle's electric motors, emitting only water vapor.

Nikola's core business aims to build and lease hydrogen and battery-powered heavy trucks to commercial customers such as Anheuser-Busch InBev SA that are looking to cut down on the tailpipe emissions of their logistics fleets. Nikola plans to provide not only the trucks, but also the refueling stations and hydrogen fuel necessary to power them.

Write to Ben Foldy at Ben.Foldy@wsj.com and Mike Colias at Mike.Colias@wsj.com

 

(END) Dow Jones Newswires

November 30, 2020 17:35 ET (22:35 GMT)

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