GM will build trucks for EV startup Nikola as it bets on the future
Detroit — General Motors Co. is again leveraging its electric technologies to gain more credibility in a field that has been dominated by shiny new startups that have attracted investors betting on next-generation transportation.
GM's Tuesday announcement that it formed a 10-year alliance with Nikola Corp. to engineer and build the electric-vehicle startup's Badger pickup truck underscores its commitment to an electric future, analysts and company insiders say. The move signals the Detroit automaker's capability in the electric and fuel-cell space that will allow it to aggressively compete with the likes of Tesla Inc., which sells more electric vehicles than any other automaker.
Badger production is expected to start in late 2022 at a GM plant to be announced at a later date.
Shares of Nikola surged nearly 41% on the news Tuesday even as GM shares climbed 8% for the day. News of the alliance hit Tesla shares with a one-two punch, tumbling 21% on the first day of trading since its effort to join the S&P 500 index was snubbed.
"One of the challenges that Tesla's had, because Elon (Musk) doesn't play well with others, they end up having to do a lot of work in-house ... and Nikola is smart enough to recognize that others have the resources and the manufacturing expertise to do a lot of this stuff and they're taking advantage of that," said Sam Abuelsamid, principal research analyst for GuideHouse Insights.
"For GM, just being able to find customers for the electrification products that they're developing ... gives them a market for their products. That helps reduce their costs for their own branded car."
GM is pressing ahead with its electric vehicle programs and is looking to use the technologies outside of its own portfolio to share the cost of developing the expensive programs. GM, which last week announced an expanded partnership with Honda Motor Co., isn't alone in forming alliances to help with cost: Ford Motor Co. has partnered with Nikola competitor Rivian Automotive LLC and Volkswagen AG. Fiat Chrysler Automobiles NV is merging with Groupe PSA of France to form a new company named Stellantis.
"I do think getting early buy-in from other companies is kind of lending some of the not needed credibility, but supporting credibility to what General Motors is producing because they kind of had a checkered past with this technology," said Jessica Caldwell, executive director of insights at Edmunds.com.
Nikola will utilize GM’s new Ultium battery system and Hydrotec fuel-cell technology for its vehicles. GM will engineer and manufacture the Nikola Badger truck's battery-electric and fuel-cell versions. In exchange, Nikola will give GM $2 billion in newly issued common stock and an 11% stake in its company.
"It appears to me that GM is aggressively executing a plan of using strategic alliances to accelerate electrification by sharing costs and resources," said Michelle Krebs, executive analyst at AutoTrader, a Cox Automotive company. "This is part of the bigger trend we're seeing. It's becoming clear that there is no single company that has enough resources to go at it alone on the future that's electrified, connected, autonomous."
GM and Honda last week signed a memorandum of understanding establishing a strategic alliance in North America for product development and purchasing. The automakers have an ongoing partnership on electrification. Earlier this year, the two agreed to develop two new electric vehicles for Honda based on GM's electric platform and with its Ultium batteries.
"Nikola is the second partner to choose our modular EV platform and Ultium battery system over competitors' technology," GM CEO Mary Barra said on a media call following the Nikola announcement. "Through these partnerships, we are growing our presence in multiple high-volume EV segments. We're building scale to lower battery costs ... this will also lead to increased profitability.
"Working with partners like Nikola helps us accelerate EV development, production and consumer adoption. It will also improve our capacity utilization and optimize capital spend as we continue to scale."
GM first looked to partner with Rivian, but after that deal fell through, crosstown rival Ford came forward with a $500 million investment in the Plymouth-based startup.
Krebs and other experts foresee more alliances between automakers in the future as they plan to spend billions on technology development and deployment. GM, specifically, plans to spend $20 billion by 2025 on electric and autonomous technologies.
With "GM moving quickly and others moving quickly ... it's almost like musical chairs. I don't want to be left without a chair," Krebs said.
GM will be Nikola's exclusive supplier for fuel cells globally except in Europe for its semi-trucks. The agreement with Nikola marks the first commercial use of GM's Hydrotec fuel-cell system.
Phoenix-based Nikola, founded in 2015, is a designer and manufacturer of battery-electric and hydrogen-electric vehicles, EV drivetrains and hydrogen stations.
"With General Motors becoming a partner for the Nikola Badger and leveraging the General Motors Ultium battery technologies and fuel cells, this will allow Nikola to achieve things that it could never do on its own," Nikola founder and executive chairman Trevor Milton said. "I don't know if you can pick a better partner in the world than GM on this, ever."
Nikola is seen as a disruptor because of the way it is pushing to get more sustainable semi-trucks on the road, Guidehouse's Abuelsamid said. While powering these trucks with fuel cells might be a good choice, there aren't enough fueling stations along truck routes.
"What Nikola is doing in parallel with developing the truck is they are developing their own hydrogen fueling infrastructure," Abuelsamid said. "They're going to build out a network of hydrogen filling stations along major trucking routes, where they actually produce the hydrogen on-site."
Abuelsamid added he has more confidence in Nikola being able to succeed in the long-haul trucking market than he does for Tesla, which is working on a battery-operated semi. Hydrogen fuel-cell trucks fuel faster and offer longer range.
GM expects $4 billion of benefits to come from the partnership between the equity value of the shares, contract manufacturing of the Badger, supply contracts for batteries and fuel cells, and EV credits retained over the life of the contract.
While the partnership with Nikola starts with its Badger truck, it will provide cost reductions for other Nikola products. In total, the automaker expects to save more than $4 billion in battery and powertrain costs over 10 years and over $1 billion in engineering and validation costs with the partnership.
Nikola is responsible for the sales and marketing of the Badger and will retain the Nikola Badger brand. The Badger was first announced on Feb. 10, and it will make its public debut Dec. 3-5 at Nikola World 2020 in Arizona.
GM is converting its Detroit-Hamtramck factory into an all-electric plant. The GMC Hummer EV and the Cruise Origin, an autonomous electric shuttle, will be built there.