What happened

Shares of General Motors (NYSE:GM) were rising on Tuesday, after GM announced that it is taking a $2 billion stake in electric-truck start-up Nikola (NASDAQ:NKLA).

As of 11:30 a.m. EDT, GM's shares were up about 7% from Friday's closing price.

So what

GM isn't paying cash for its new stake in Nikola -- it's trading "in-kind services" for $2 billion in Nikola stock and some other things. Here are the deal's key points:

  • GM will complete the engineering and "validation" (the testing needed before sale) of Nikola's Badger pickup.
  • GM will build the Badger in a GM plant, using its Ultium batteries and the Hydrotec fuel cells developed by GM's joint venture with Honda. Nikola will fund the Badger's assembly line's tooling and setup costs. Production of the Badger will begin before the end of 2022. (Nikola will market and sell the Badger itself.)
  • GM will also supply the Ultium batteries and Hydrotec fuel cells to Nikola for the Class 8 (tractor-trailer) trucks that Nikola plans to build in Arizona. 
  • GM becomes Nikola's exclusive supplier of fuel cells outside of Europe (where Nikola has existing deals with supplier Robert Bosch and CNH Industrial's IVECO heavy-truck subsidiary). 
  • It's a 10-year deal.
A bare electric-vehicle chassis showing battery pack and motors

GM's Ultium batteries and next-generation electric-vehicle architecture will underpin Nikola's Badger pickup. Image source: General Motors.

Here's what GM gets in return:

  • $2 billion in newly issued Nikola stock at $41.93 per share. 
  • The right to nominate one director to Nikola's board. 
  • Contract-manufacturing fees for the Badger, plus "cost-plus" (meaning, profitable) contracts to supply batteries and fuel cells to Nikola.
  • 80% of the electric-vehicle tax credits generated by the production of the Badger (a valuable commodity for GM), plus first right of refusal to buy the remaining 20% from Nikola.
  • A high-profile client for its fuel cells. 

Long story short: For GM, this is a deal with a lot of potential upside, with very little at risk up front. 

Now what

Factoring in all of the potential benefits, GM estimates that it will get over $4 billion in value from this deal over 10 years. But note that it can't sell its Nikola shares anytime soon: GM's stake in Nikola is locked up for now, and it will unlock in three stages beginning next year and running through mid-2025. 

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