What happened
Shares of a struggling electric truck startup Nicholas (NASDAQ: NKLA) were down again on Tuesday. A post-IPO lock expired on Tuesday morning, allowing insiders to sell millions of shares – and it added selling pressure to a stock that was already feeling the impact of a disappointing deal with General Engines (NYSE:GM) announced Monday.
As of noon EST, shares of Nikola were down about 15.9% from Monday’s closing price.
So what
Insiders holding Nikola shares have been unable to sell since early June, when Nikola went public following its merger with a special-purpose acquisition company. For about 161 million shares, that “lock-in” period expired this morning – and selling pressure was high on Tuesday morning.
Adding to the drama, those 161 million shares include around 96 million held by Nikola founder Trevor Milton, who left the company under a cloud in September amid allegations that he misled investors about the state of the company’s technology.
That alone could be enough to push Nikola’s shares into the red on any other day. But there’s another factor at work here: Nikola’s long-awaited “partnership” deal with General Engines (NYSE:GM), announced yesterday, fell far below what many investors expected.
Nikola said Monday he would refund customer deposits for the Badger pickup, which he no longer plans to build. Image source: Nikola.
It’s not a terrible deal in itself: GM has agreed to sell fuel cells to Nikola and provide assistance to integrate the units into Nikola trucks. But in September, Nikola and GM announced a much larger deal in which GM would design and build Nikola’s Badger electric pickup truck and supply batteries and fuel cells for the company’s heavy-duty trucks, while taking a $2 billion stake in the start-up.
That deal, like so much else for Nikola, was scrapped after short seller Hindenburg Research accused the company of misleading auto investors.
Now what
In a new note on Tuesday morning, Deutsche Bank analyst Emmanuel Rosner said he viewed the revised partnership with GM as “particularly negative” for Nikola shares. While it’s good that Nikola got access to GM’s fuel cell technology, Rosner wrote, the scaled-down deal suggests that after further due diligence, GM was unwilling to take on the risk. of an investment in Nikola by accepting his shares as Payment.
I am inclined to agree with Rosner. We know GM isn’t afraid to invest in electric vehicle start-ups because it owns a stake in the electric pickup truck maker. Lordstown Engines. But he’s clearly lost interest in owning Nikola shares after further due diligence, and that’s not a good sign for the stock.
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