GM’s Embarrassing Deal With Nikola

The carmaker’s $2 billion deal with an unproven upstart reveals just how little confidence it has to beat Tesla

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.

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 a 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.

Editor at Large, Medium, covering the turbulence all around us, electric vehicles, batteries, social trends. Writing The Mobilist. Ex-Axios, Quartz, WSJ, NYT.

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