General Motors Co. (NYSE: GM) is taking an 11% equity stake in startup electric truck maker Nikola Corp. (NASDAQ: NKLA), supplying advanced batteries and fuel cells for the company's Class 7 and 8 trucks.
GM also will produce battery- and hydrogen-powered variants of Nikola's Badger full-size electric pickup.
The announcement from the two companies Tuesday goes well beyond Nikola's promise to name a manufacturing partner for the Badger before the end of the year. GM will make the Badger on its new full-size battery electric truck platform beginning in 2022.
Nikola shares traded about 46% higher on the news. GM shares were up about 10%.
Nikola said the tie-up with GM will save $4 billion in battery and powertrain costs and $1 billion in engineering validation over 10 years. Nikola designed the Badger from the ground up. Now it is turning it over to GM to execute.
"This allows Nikola to do things it could never do on its own," Nikola founder and Executive Chairman said on a media call with GM CEO Mary Barra.
"Our backgrounds are different," Barra said. "But we share the goal of putting as many [electric vehicles] in the hands of our customers as quickly as possible."
GM backing lots of electric trucks
In addition to being the contract manufacturer for the Badger, GM also recently invested $25 million in electric truck startup Lordstown Motors Corp. LMC is building a commercially focused electric pickup using the underpinnings of a truck developed by Workhorse Group (NASDAQ: WKHS). GM sold its former Lordstown car assembly plant to LMC in November.
GM also is bringing its own battery-electric truck to market. The platform will be the basis of the Badger debuting in 2022. GM did not say where the Badger would be built. The automaker builds full-size pickups in Fort Wayne, Indiana, and Silao, Mexico. It assembles Class 3 heavy-duty pickups in Flint, Michigan.
The field of electric pickup competitors is large. In addition to traditional automakers like GM and Ford Motor Co. (NYSE: F), Amazon-backed startup Rivian and market-leading electric carmaker Tesla Inc. (NASDAQ: TSLA) plan battery-powered pickups. Only Nikola plans a hydrogen fuel cell variant. Milton said potential customers are split 50/50 over which to order.
Separately, GM has a partnership with LG Chem to build its Ultium batteries at a new facility near the Lordstown assembly complex it sold to LMC.
"We are growing our presence in multiple high-volume EV segments while building scale to lower battery and fuel cell costs and increase profitability," Barra said.
Asked whether Ultium was the battery technology breakthrough that he promised in November, Milton said Nikola's separate effort may or may not continue.
"We put a lot of work and a lot of development into it," Milton said. "But that's going to be one of the next discussions we have [with GM]. Does our technology help you at all and can it be integrated in?"
A fuel cell production breakthrough for GM
The bigger part of the deal involves GM's Hydrotec fuel cells, which it developed with Honda Motor Co. GM has more than 50 years of fuel cell expertise dating to the Apollo moonshot in the 1960s. It has yet to commercially produce them.
"That's a wide-open growth opportunity for us," Barra said. "We've worked for years on the fuel cell technology. I see it as really creating long-term growth for our shareholders."
GM signed a deal with Honda in January 2017 to make fuel cells at a plant in Brownstown, Michigan, south of Detroit. But GM never announced a product. Honda makes a fuel cell version of its Clarity passenger sedan. It had expected to use fuel cells from Brownstown around this year.
GM will be Nikola's exclusive provider of fuel cells in North America. Nikola plans to begin building its Nikola Two Class 8 fuel cell tractor at a new plant under construction in Coolidge, Arizona, in 2023. It has orders for 14,000 fuel cell trucks worth an estimated $10 billion. Anheuser-Busch ordered up to 800 Nikola fuel cell trucks in 2018.
So far, Nikola has been working with Robert Bosch on fuel cell development. Bosch will provide Nikola's fuel cells in Europe. More than 50 Bosch engineers work on fuel cells and other projects with Nikola in Phoenix. Bosch also is an investor in Nikola.
"Nikola spent a lot of time working on our own fuel cell and working with other suppliers," Milton said. "The scalability of combining forces [with GM] and really bringing that cost down for us to be able to purchase them, that is a big advantage. We hope the suppliers we've worked with will work with GM as well to save time."
Unlocking GM technology value
GM expects to receive more than $4 billion of benefits between the $2 billion equity value of the shares, making the Badger, supply contracts for batteries and fuel cells, and electric vehicle credits it will get for making the powertrains. GM could sell a one-third share of its stake in Nikola after one year, after two years and in 2025.
"We like the scope of the deal as it is beyond just manufacturing," Cowen analyst Jeffrey Osborne said in a note to investors Tuesday. "We believe this partnership serves as validation that [battery-electric vehicles] and [fuel cell electric vehicles] remain well-positioned in the dynamic auto industry."
In a slideshow for analysts, GM pointed to the possibility of 3 million to 4 million fuel cell trucks and vans by 2030 and the opportunity for a terawatt hour of fuel cell backup power for data centers by 2030. GM also is exploring Hydrotec fuel cells for military, aviation and undersea applications.
Barra has hinted that GM could spin off its battery and electric vehicle businesses to help increase its share price, which has languished for years.
GM purchased controlling interest in startup autonomous carmaker Cruise Automotive in 2017. It runs as a separate business with former GM President Dan Ammann as CEO.
GM's relationship with Honda has expanded beyond fuel cells to electric vehicles and an announcement last week of a broader alliance.
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