The hammer fell on Nov. 30, 2020. General Motors will not buy into Nikola. But according to the new memorandum of understanding, GM still wants to work with Nikola on battery and fuel cell technology. Consequently, the Badger pickup truck will not emerge from GM’s assembly line as planned. And the originally projected USD 2 billion investment is also rendered moot. As a result, Nikola stock plummeted.
Betting on falling prices, investors sold over 50 million shares short. If the GM partnership had gone through, the massively shorted market would have made for a perfect squeeze, bringing USD 40 to USD 50, or more. For the nonce, short sellers can be pleased with themselves. Meanwhile, Nikola partners Bosch, Mahle and Iveco see no reason to abort cooperation, proof that the company’s business angle is not just hot air.
We can assume Nikola [Nasdaq: NKLA] is now seeking another partner for the Badger. My speculations tend toward FiatChrysler due to its lack of electric cars on the road, allowing Tesla to provide regulatory credits. And with the stock price so low, investment banks can supply the USD 1 billion Nikola needs for its own plans – the perfect plunge. Especially considering today’s intense interest in fuel cells on the trucking market.
Passing review
For Nikola Motors, 2020 was a year of high flying and crash landings. Fraud accusations leveled by a short seller hit the company hard, costing Nikola not only dream partner GM for Badger production but also a major contract for 2,500 battery-operated garbage trucks. The company founder left the enterprise announcing he hoped that would repair the damage. His departure, though, had the opposite effect, making it look like the short seller was right. Going from bad to worse, Nikola’s strategic partner Bosch reduced holdings to below 5 percent, ditching 4 million shares on the stock exchange the very moment GM withdrew its bid.
It can’t get any worse. The stock price slump is an appropriate response. Meanwhile, much of the stock, especially the founding shareholders’, is up for grabs, with the PIPE lock-up agreement expiring on Dec. 21, 2020. What now? Is there light at the end of the tunnel? If you ask me, I’d say yes. I draw my optimism from a December article in the German Süddeutsche Zeitung newspaper. Titled “Auf Achse,” the report claimed Nikola had the right software concept to put fuel cell commercial vehicles on the road – with battery and hybrid versions to boot.
The truck design was acquired. Another company seems to have simply copied it. Prototypes have already arrived in the United States, according to a spokesperson for Iveco, a CNH Industrial subsidiary that is working with Nikola out of Ulm, Germany. CNH owns around 6.7 percent of Nikola. At the same time, an e-truck factory is under construction in Arizona. There is said to be USD 900 million in the bank, but will it also be enough to refund Badger deposits? So much for the – basically negative – updates.
Phoenix from the ashes?
Now for the 2021 prospects: Investors have shorted over 50 million shares. When will they buy in again? They’ve made their profit through the massive price slump. What will they do when there’s some good news? What if CNH decides to increase its Nikola holdings? CNH could also use the technology for agricultural equipment. And what if FiatChrysler catches the ball GM tossed away and produces the Badger?
… Read more in the latest H2-International e-Journal
Risk warning
Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.
Author: Sven Jösting, written December 18 and January 15th, 2020