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Nikola Shares Drop 24% after GM Scales Down Partnership Deal

UTC by staff writer · 3 min read
Nikola Shares Drop 24% after GM Scales Down Partnership Deal
Photo: Nikola Motor Company / Twitter

Nikola shares have been on a rollercoaster in the past few months. Today they have lost nearly 24% of their value.

Nikola Corporation (NASDAQ: NKLA) shares have dropped sharply after General Motors Company (NYSE: GM) scaled down its deal with the electric vehicle company. GM ha pulled out of an earlier agreement to build Nikola’s electric truck, the Nikola Badger.

The two companies announced in early September that they had inked a partnership that would see GM take up an 11% stake at the EV company, worth $2 billion. The deal would see GM build the Nikola Badger electric truck. On its part, GM would supply Niko with its Ultium battery system and Hydrotec fuel cell technologies.

However, in a new announcement today, GM has revealed a significant scale-down in its deal with the Arizona-based company. The two signed a Memorandum of Understanding (MOU) that now “supersedes and replaces” their September agreement.

As per the MOU, while GM will still supply the battery and fuel cell technologies, it has pulled out of building the Nikola Badger. GM will also not take up any equity on the EV company.

“The MOU does not include the previously contemplated GM equity stake in Nikola or development of the Nikola Badger,” the press release stated. It added, “Nikola will refund all previously submitted order deposits for the Nikola Badger.”

Shares of Nikola dropped sharply in pre-market action following the announcement, shedding 17.65%. The stock was trading at $21.35 with a 23.56% fall. GM stock price remained largely unaffected, losing just 1% pre-market. Now it is down 2.22%, trading at $44.07.

EV Industry Faces Uncertainty

Nikola shares have been on a rollercoaster in the past few months. In early September, the company registered a spike after it announced the GM partnership. However, shortly after, Hindenburg Research published a report that claimed Nikola had deceived investors to bump up its price. The short seller pointed to Trevor Milton, the founder and chair of the company, as the perpetrator. While Nikola denied the charges, Milton eventually stepped down as chair.

However, shortly after, GM CEO Mary Barra confirmed that her company was still determined to work with Nikola. In an interview with Bloomberg, Barra reassured investors that the two were laboring to get started on the Nikola Badger. Nikola shares shot up 11% following the announcement.

Nikola’s share price is just one of the many in the electric vehicle industry that has tumbled in recent weeks. After a rally that saw some EV companies double their valuation in weeks, uncertainty about the industry’s future is catching up with most companies.

Workhorse Group Inc, Ayro Inc., China’s XPeng Inc and Canada’s ElectraMeccanica have all seen their shares tumble in recent weeks. The leader Tesla Inc (NASDAQ: TSLA) recorded a 34% drop in September following the listing of additional shares worth $5 billion.

Last week, shares of Evergrande Auto dropped by 11% after reports emerged claiming that a Chinese authority was investigating the firm. The National Development and Reform Commission is reportedly looking into how much property the company owns, its development progress and the amount of investment it has raised.

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