General Motors’ ongoing partnership with vehicle maker Nikola Corp. could result in a dream team or a deal with the devil.
In any case, GM CEO Mary Barra does not back down despite Wall Street rumors that GM would possibly have failed in its due diligence.
Last week, Hindenburg Research published a 67-page report accusing Nikola of being a “complex fraud. ” Nikola refuted this claim.
First, the Securities and Exchange Commission and the US Department of Justice have not been able to do so. But it’s not the first time They’re reviewing the accusations that oppose Nikola, according to media reports. The news crushed Nikola’s percentage value and cast a shadow over his existing agreement with GM. maintaining their plan, and some automotive industry experts are also giving their blessing to the union.
“The biggest threat right now is the threat of a massive black eye to (GM CEO) Mary Barra and the company,” said David Whiston of Morningstar. “Even though there isn’t much monetary threat right now because the deal is first of all cashless payments to GM, it still looks very optically bad if Nikola is accused of criminal fraud or goes bankrupt. But as a GM analyst, I’d rather have this threat that GM wastes billions of dollars buying Nikola shares. . “
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Analyst Sam Abuelsamid of Guidehouse Insights in Detroit agreed that GM had more to gain than lose.
“All of this is potential. The worst case scenario for GM is that they have a slight effect on reputation if things don’t go well with Nikola. They’re not putting cash into this agreement,” Abuelsamid said. “They have a visitor who will potentially buy their fuel cells and batteries. In return, they acquire a stake in a company that potentially has an upward valuation, compared to what it actually did. “
Just nine days ago, GM announced to everyone that it would take a stake in Nikola.
“This is the first commercialization of our mobile fuel generation and the first presentations were made through Steve Girsky,” Barra told the media at the time.
Girsky is a former vice president of GM who is now a managing spouse at VectoIQ, a New York-based investment corporation that is helping fund new companies in the automotive industry. Nikola is one of the new companies to which Girsky’s company has injected $700 million and monitored its public quote, according to Bloomberg.
Girsky insisted that he had verified Nikola before filing an agreement with GM.
“We introduced ourselves to an army of other people to do due diligence in this area,” Girsky said in an August 2 webcast on “Autoline This Week,” in which Bloomberg participated. “I have no doubt that there will be twists and turns here. “, however, I have put my reputation at stake by this agreement. “
Girsky responded to attempts to comment through Free Press.
The deal will eventually give GM $4 billion in various profits while marketing its electric vehicle technology. 2022.
The 10-year deal will save both corporations really considerable costs. This is for GM because it is investing billions of dollars in the progression of an all-electric vehicle strategy.
The corporations closed the deal until Sept. 30, which gave GM a few weeks to replace his mind, but Barra holds on.
“Our corporate has worked with many other partners and we are a very competent team that has demonstrated the right diligence,” Barra said at a virtual RBC Capital Markets convention on Monday. “Based on the agreement we’ve reached, it validates our technology, it allows us to have more people with technology, which gives us the merit of scale, which will help us reduce costs. “
Morningstar’s Whiston said if GM refuses to conclude the deal this month as planned. Nikola may simply argue this, “but the agreement stipulates that either party may terminate the agreement if the agreement is concluded before December 3. “
On Friday, shortly after the publication of the Hindenburg report, GM issued this statement: “We are completely confident in the price we will create when running together. We made the statements we made in pronouncing the relationship. “
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Hindenburg Research’s report is not the first time doubts have arisen about Nikola.
In June, Bloomberg reported that Nikola’s founder and president Trevor Milton had exaggerated the functions of the company’s first truck, the Nikola One. The truck never occurred. In fact, Nikola has not yet manufactured any of the hydrogen heavy fuel mobile trucks he is developing.
Nikola denied making misleading statements and said the Hindenburg report motivated the company’s preference to take effect if Nikola’s value rate dropped.
Abuelsamid said he would “discard Nikola’s fraudulent activity,” but that it would be worse than what others have done.
“So Nikola shoots a video of the truck while driving downhill; automakers do this nonsense all the time,” Abuelsamid said. In 2007, when GM introduced the original Volt car prototype, it drove it through a golf cart engine. You see it moving slowly in a neighborhood, there’s no sound because it’s the engine of a golf cart. “
Nikola One, a concept and electric car manufacturer Tesla, has continually done the same with some of its concept cars, Abuelsamid said.
Similarly, Milton is a salesman who is developing a business that has still manufactured a vehicle.
“Trevor Milton is like many other entrepreneurs, a mix of PTBarnum and Preston Tucker, even Elon Musk,” said John McElroy, host of “Autoline. “It refers to Barnum, the celebrated circus showman, Tucker, the car entrepreneur known to the Tucker 48 sedán, and Musk, Tesla’s eccentric founder and CEO.
“They promise the sun, the moon and the sky. And they’ll use smoke and mirrors to take off,” McElroy said.
Starting a startup is complicated and requires marketing specialists to show “confidence and optimism even when everyone twists their hand,” McElroy said. “As long as, in spite of everything, they deliver something similar to what they promised, everyone forgets their past antics. “
The important thing, McElroy and Abuelsamid said, is that none of Nikola’s partners abandoned him or publicly expressed doubts about his agreements.
Prior to the GM deal, Nikola had struck a deal with Germany’s Robert Bosch to use Bosch’s mobile hydrogen fuel propulsion systems in trucks from a partnership with Italian semi-trailer manufacturer Iveco SpA. CNH Industrial owns Iveco . Just as GM, Bosch and CNH promised to race with Nikola.
“Perhaps that will replace whether the SEC or the Justice Department accuses Trevor Milton of embezzlement,” McElroy said. “However, I think they will because Trevor exaggerated Nikola’s talent but did not illegally deceive investors. “
The SEC has the strength to file civil charges, while prosecutors can simply initiate federal criminal proceedings. If any of these conditions are met, the monetary threat to GM is low.
“At worst, GM will never realize the more than $4 billion in profits they claimed to derive from the deal, adding Nikola Equity,” Whiston said. “Once GM strengthens its ability to manufacture Nikola vehicles, if Nikola goes bankrupt, GM would possibly not see all or part of the $700 million in capital expenditure payments owed under the agreement. “
Even a black eye on GM’s reputation would be temporarily forgotten, given GM’s wonderful reputation.
“To what extent has Walgreens’ reputation been replaced after agreeing to put Theranos in their stores?” said Abuelsamid, referring to the pharmacy chain’s deastrous agreement with Theranos, Silicon Valley’s now-defunct blood company, which turned out to be a fraud.
“It didn’t have much effect on Walgreens,” he said.
Contact Jamie L. LaReau: 313-222-2149 or jlareau@freepress. com. Follow her on Twitter @jlareauan. Learn more about General Motors and subscribe to our newsletter.