Nikola Corp. (NKLA) shares plunged nearly 27 percent on Monday following the news that General Motors (GM) has abandoned its plan of acquiring a stake in the Phoenix, Arizona-based electric automaker.
However, the two companies have signed a supply agreement instead. GM will deliver its Hydrotec fuel cell system to Nikola as a part of that agreement.
GM in September announced its plan of buying an 11 percent stake in Nikola , as well as manufacturing a fuel cell-powered pickup for the company over the next two years. The overall investment was valued at nearly $2 billion at that time. However, it has canceled its original program.
Meanwhile, Nikola said it will continue to focus on its zero-emission vehicles and will reimburse the money it had gathered for the Badger pickup truck it was looking to build with GM. The electric automaker said it received a refundable deposit worth $6.9 million for Badger that it will have to refund to the customers.
The latest development will further add to the existing worries of Nikola . The latest agreement announced by GM is a non-binding MoU or in simpler words a potential agreement subject to negotiations. If it goes through, GM will supply its Hydrotec fuel cell system according to the specifications decided by the two companies.
Moreover, GM will receive an upfront payment from Nikola for setting up the fuel-cell facility. Nikola is also discussing a supply deal for accessing GM’s Ultium battery system, which it intends to use in its Class 7 and Class 8 trucks.
Why GM abandoned its original plan?
GM revealed its investment plan for Nikola at the start of September. Just a few days after the announcement, Hindenburg Research released a report about Nikola and accused the electric automaker of fraud. Since then, many speculated that the deal between the two might collapse amid serious accusations in the report. And those speculations turned true on Monday when GM backed away from the potential deal.
Soon after Hindenburg’s report, Nikola threatened to initiate a lawsuit against the research firm. Hindenburg claimed in the report that it has sufficient evidence to prove that Nikola founder Trevor Milton made misleading statements about owning proprietary technology that could help his company to join hands with big automakers.
Nikola refused those allegations and stated that it has nothing to hide. It also said back then that Hindenburg has done character assassination of Milton, who is chairman and founder of the company.
Nikola stock could drop further
Milton is the biggest shareholder of the company, holding over one-fourth of the total outstanding shares. Selling restrictions on certain insiders including Milton has just ended. He can now sell his shares in the market starting today.
He holds nearly 91.6 million shares worth $1.9 billion as per the closing price of the stock in the last trading session. This is also the first time since Nikola’s IPO that he will be able to trade the stock. Overall, there are around 166 million shares that are now available for trade from other investors and insiders including Milton.
Nikola stock may further lose its value if those insiders decided to sell their shares. Speaking on the situation, Deutsche Bank analyst Emmanuel Rosner said in a statement that any stock sell-off could result in significant selling pressure in the near term. Rosner has been maintaining a “Hold” rating for the stock, though he warned investors about big fluctuations in Nikola’s share price in the coming days.
Nikola stock performance
Nikola shares are down in the mid-day trading Tuesday, marking a drop for the second straight day after GM pulled the plug on the original deal. The stock has been on a roller coaster ride since going public.
The stock touched a high price of around $90 in June, though the surge lasted for a short time and the share price fell sharply in the subsequent months. Overall, NKLA shares have surged about 65 percent so far this year. However, the stock has significantly lost its value over the past week. It has plummeted more than 34 percent during the last 5 days, including today’s drop.