GM’s embarrassing deal with Nikola
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
🚗 The terrible GM-Nikola tie-up 🚗
The Buy/Sell/Hold Analysis
In December 2016, a half year before Tesla released its mainstream-priced Model 3, GM delivered its first all-electric Bolts to customers. The arrival of the two vehicles marked a crucial moment in the industry, when it would finally be possible to know whether the mass market was prepared to buy electric vehicles in large numbers.
The Tesla was swankier, but in almost every other way the cars were comparable: Like the Model 3, the Bolt went more than 200 miles on a single charge and was priced at around $35,000 before government rebates. Technology experts gave the Bolt rave reviews, including Motor Trend, which declared it the 2017 Car of the Year. By the end of 2017, GM was looking very good indeed — it had sold about 24,000 Bolts, 13 times the 1,764 Model 3s sold by Tesla.
But in 2018, the first full year in which both vehicles were available, the competition flipped: Tesla sold almost 146,000 Model 3s, while GM delivered just 18,000 Bolts. It was not only a complete drubbing by Tesla, but a 23% drop from the Bolt’s 2017 sales, which, with the benefit of a year, looked like a low bar. Since then,Tesla has sold more than a half-million Model 3s, while Bolts have yet to again reach even their 2017 numbers.
This Tuesday, GM announced a $2 billion all-stock deal to own 11% of Nikola, an electric truck startup mimicking Tesla’s name and model. GM will engineer and build the Nikola vehicles, starting with its Badger pickup, effectively from the ground up. The nerve center of the Nikola pickups — the battery — will be the GM Ultium, a first-rate system that appears to be state of the art (with the caveat that Tesla’s Battery Day is still two weeks away).
The tie-up sent Nikola’s shares surging by 51% and GM’s by 10%. Credit Suisse called it “a crucial validation datapoint on the GM EV strategy.” Barclays crowed that, given Wall Street’s ho-hum appreciation thus far of GM’s EV chops, marketing its know-how to other automakers was the way to go. But it was Wedbush that better understood what was going on. In its own note to clients, it called the news “a potential game-changing deal” — for Nikola.
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For those unfamiliar with GM’s history: With the iconic Corvette, it popularized the mainstream sports car. With the Camaro, it also made fast and sporty cars a family purchase. In short, GM has daring spirit buried somewhere deep in its DNA. That is what the Bolt (and its hybrid predecessor, the Volt) were all about — recapturing the glory days.
The deal with Nikola, conversely, is an embarrassing show of insecurity, a demonstration that GM does not believe in itself. This lack of confidence is apparent in GM’s failure to stand up tall and promote its own creations. GM CEO Mary Barra said the deal with Nikola is “the beginning of unlocking the value that’s within this company.” But the true value of GM’s value is in its vehicles — its electric Cadillac, to come out later this year, and even more important, its electric Hummer, due for delivery late next year — and not being the enabler of its rivals.
By trading on Thursday, GM’s share price dived, closing down 9% from the early surge at $30.17, just over its pre-deal $30 a share. Nikola, too, had plunged by 30% over two days, to $37.57, hovering just over its own pre-deal share price of $35.55 — a sign of the market catching up to the likelihood that this deal probably won’t end well for either company.
Verdict: Sell
— Steve LeVine
⚡ Lightning Round ⚡
⚡ With gyms still restricted, Peloton tries to broaden beyond its bougie base. On Tuesday, the exercise and fitness startup revealed a price drop on its signature stationary bike — down to $1,895 from $2,245 — and announced its treadmill will cost $2,495 (down from $4,295) starting in early 2021. These price cuts work in tandem with Peloton’s pre-pandemic moves to make its digital fitness classes and app cheaper and more accessible to help sway new customers looking to workout at home — minus the pricey hardware. Buy.
⚡ The Long-Term Stock Exchange finally launches, ready to challenge Wall Street at its own game. It’s only the third active exchange approved for both trading and listing public companies (Airbnb reportedly explored taking its IPO to the LTSE), favoring “the resilience of long-term governance” over short-term “boom-bust cycles” tied to quarterly earnings. Founded by entrepreneur Eric Ries and funded by VCs like Andreessen Horowitz and Peter Thiel’s Founders Fund, the LTSE is Silicon Valley’s controversial homegrown alternative to the Nasdaq and NYSE, and what it perceives to be their outdated approach to investing in startups. Hold.
⚡ Even during a work-from-home revolution, Slack can’t seem to pull off a Zoom-style success. Its Q2 results reported on Tuesday failed to meet Wall Street’s expectations, with its $218.2 million in billings falling short of estimates for $232.9 million, according to Yahoo Finance. Following the report, Slack saw its second-biggest stock sell-off on record as analysts cut their price targets, perceiving the workplace chat platform as unable to live up to its promise as an email killer. Hold.
⚡ JPMorgan orders employees back to the office, because apparently it’s done with public safety. According to the Wall Street Journal, barring “child-care issues and medical conditions that make them more vulnerable to coronavirus complications,” employees on sales and trading teams are expected to return in-person by September 21, proving that even companies that can technically allow remote work really don’t want to keep doing it. JPMorgan’s leaders aren’t alone — Netflix CEO Reed Hastings recently said he’d ask his employees to return to the office “twelve hours after a vaccine is approved,” calling remote work “a pure negative.” But even if physical distance is a wet blanket for companies built around storied corporate cultures and serendipity, investment bankers and engineers are a far shot from essential workers. Sell.
📈 The Number: $9.99
That’s the cost of a monthly “Classic Coffee Pass” subscription from Pret A Manger at its 72 U.S. locations.
As urban corridors become ghost towns, lunchtime retailers are becoming increasingly creative. The British fast casual chain’s new pass gets you “unlimited” coffee, ice coffee, or tea (or you can upgrade for $19.99 a month for posher espresso variations). The concept, a company executive told the Wall Street Journal, emulates Netflix and other subscription entertainment models, whose popularity spiked during lockdown: “That’s really what we want to recreate with our coffee subscription.” Perhaps another less sexy inspiration comes from the food chain Panera, which introduced an $8.99 coffee subscription earlier this year, pre-pandemic. The strategy may have a different payoff in the Covid-19 era, though; Pret sales are down 60% from last year, and it’s closed dozens of locations. So perhaps luring caffeine fiends working from home with a bottomless cup gets them back into stores — and maybe picking up a chicken and mozzarella baguette along the way. You can bet that bigger coffee rivals like Dunkin and Starbucks will have an eye on this experiment, to see just how addictive consumers find it.
— Rob Walker
📖 Marker’s Read of the Week: Goodbye Lipstick Index — and hello Canned Meat Index. Check out these new economic indicators for tracking the coronavirus recession.
🔎 Marker’s New Fixation 🔎
If you’ve been aching to update your mezuzahs and Shabbat candles with trendy minimalist redesigns, your prayers have been answered. Via Maris is a direct-to-consumer brand giving Judaica like menorahs the same treatment Warby Parker gave glasses and Away gave suitcases, complete with the inoffensive pastel colors and industrial aesthetics. Founder Dana Hollar Schwartz told Vogue that she was originally inspired to design a mezuzah that fit her own style — “contemporary seasoned with the odd antique, clean neutrals seasoned with pops of color” — which unsurprisingly overlaps with countless other DTC “blands,” Ben Schott’s new label for supposedly disruptive startups like Quip and Casper whose products and logos boast looks that are near-identical to their competitors. But whether or not Via Maris is offering up anything wholly groundbreaking, it’s at least, in my opinion, selling a prettier menorah than anything I’ve ever pulled out of winter storage.
— Jean-Luc Bouchard, Senior Platform Editor, Marker
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