The deal between Nikola Corp. and General Motors Co. went from “game changer” to “nothing to write home about” as Wall Street braced for another potential blow for Nikola this week.
Nikola /zigman2/quotes/208704275/composite NKLA -3.84% stock fell more than 24%, on track for its lowest close in two weeks and its largest percentage decline since Sept. 23, when it fell 26%.
Earlier Monday, Nikola announced a scaled-back deal with GM /zigman2/quotes/205226835/composite GM +1.86% that was a far cry from what had been hinted in September. The agreement now amounts to “a good supply partnership” in fuel-cell technology, Wedbush analyst Dan Ives said, with no GM stake in the startup.
“In a nutshell, the signing of GM as a partner is a positive but ultimately no ownership/equity stake in Nikola and the billions of R&D potentially now off the table is a major negative blow to the Nikola story,” he said.
Ives kept the equivalent of a sell rating on Nikola stock and a $15 price target, implying a 25% downside from Monday’s prices. Hopes of a deal with GM had pushed Nikola shares about 30% higher in the last couple of weeks.
Jeffrey Osborne at Cowen took the opposite view, saying that the current deal is a “positive development” for Nikola.
It “reduces dilution and cash burn and focuses management on a complex ramp of production” of both electric and fuel-cell commercial trucks, he said in a note Monday.
“GM was never buying (about $2 billion) of stock, they were getting it for free under the prior proposed arrangement,” Osborne said. “This deal also is likely to have much lower capex commitments relative to the (about $700 million) that was required to build capacity for (50,000) Badger pickups annually.”
Meanwhile, adding to investors’ worries about the company, some 130 million shares of Nikola, mostly owned by founder Trevor Milton, will unlock on Tuesday, more than doubling the current free float.
If Milton were to sell, it would create “meaningful technical pressure on the stock if he were to sell,” Deutsche Bank analyst Emmanuel Rosner said. Milton stepped down as board chairman in September.
“We could envision large selling on his behalf given the bulk of his wealth is tied up in NKLA shares, and that he is no longer affiliated with the company,” he said.
Nikola had announced the potential deal with GM in September , and earlier this month said the talks with GM were ongoing. The two companies had until Thursday to hammer out a final agreement. GM announced its own deeper push into EVs this month.
Gone is also the possibility that GM would be the maker of Nikola’s Badger pickup truck, which shuts down the project. Nikola said Monday it will refund order deposits.
Shares of Nikola have gained 107% this year, compared with gains around 12% for the S&P 500 index. /zigman2/quotes/210599714/realtime SPX +1.39%