Did Nikola (NKLA) Get the GM Deal Wrong? JP Morgan is ‘skeptical’

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With Nikola’s CEO’s unclear replies on the GM deal, investors move away as JP Morgan has its reservation on this deal. 

Nikola Corp. (NKLA) was expected to a make with General Motors for producing and manufacturing its EV pick truck “Badger”. The deal seems to be over before it began.

The investors were quite enthused with the Nikola-GM Badger deal. The stock surged over $36 on Nov. 24 as the potential deal news re-emerged.

JP Morgan has shown doubts on this potential deal after the CEO of Nikola stepped away from replying on the future ‘Badger agreement’ between the EV maker and GM.

Replying to CNBC Host Jim Cramer, Nikola’s CEO Mark Russell said:

“We can’t comment on continuing discussions.”

This statement came as a big blow to Nikola stock. Shares of Nikola went down up to 17.4% on Wednesday and dropped 12.35% on Thursday. NKLA has dropped from as high as $36.92 on Nov. 24 to $30.24 on Nov. 26.

However, Russell added that Nikola was interested in GM’s car battery and hydrogen fuel cell systems.

JP Morgan analyst, Paul Coster thinks that the car companies will probably renegotiate on the prior announced $2 billion Badger deal. Paul expects that Nikola might just go for GM’s battery and fuel cell technologies instead of complete manufacturing of its Badger at GM.

The GM deal would have been closed by September 30, 2020, but a fraud accusation of short seller Hindenburg Research on Nikola for jacking up the stock price changed the scenario. This had the founder and Executive Chairman of the companyTrevor Milton to a dramatic exit.

When Cramer asked that will the company close the deal with GM, and is he going to offer some reassurance, Russell shook his head and said:

“Can’t do that, Jim. When we have something to tell you, we’ll let you know.”

Russell commented that they need to make sure that this deal is about business care and makes sense for their shareholders. The company wants a partner at this time that can enhance its ecosystem.

The reason why Nikola insists on having a partner is that their core objective is to make heavy EV trucks based on hydrogen technology. For this reason, they need to have someone like GM that has all the components Nikola is looking for.

Coster from JPM said that both the companies need to make a deal beneficial for both Nikola and GM. If the deal is not completed by December 3, 2020, he sees either of the party moving away from the agreement.

The CEO of Nikola highlighted that the company intends to raise money in one more tranche in 2021. With approximately $900 million cash in hand, the automaker believes that they can make it if the GM deal does not work.

With all the technicalities and what’s stopping Nikola to complete the unfinished business, the company needs to satisfy its shareholders and investors.

As we write this at 10:03 A.M. EDT, Nikola Corp. (NKLA) was trading at $29.50down by almost 2.76%.

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