Please ensure Javascript is enabled for purposes of website accessibility

Stock Markets Tank Again; GM, Nikola Take It to Tesla

By Dan Caplinger – Updated Sep 8, 2020 at 11:29AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Another day of downward moves showed the fear investors have.

The stock market's huge gains over the summer put many investors in a euphoric mood coming into September, but this month has thus far been brutal. Two days of selling last week showed few signs of letting up after the holiday weekend, and high-flying tech stocks continued to bear the brunt of the damage. As of just after 11 a.m. EDT, the Dow Jones Industrial Average (^DJI -1.62%) was down 405 points to 27,729. The S&P 500 (^GSPC -1.72%) dropped 58 points to 3,369, while the Nasdaq Composite (^IXIC -1.80%) was off 249 points to 11,063.

The electric-vehicle space has been a battleground for growth-seeking investors, as industry leader Tesla (TSLA -4.59%) has seen a number of new upstarts come into the space looking to stake their claims. Nikola (NKLA -4.66%) came public by merging into a special purpose acquisition company, but today, it got a huge boost of confidence through a high-profile partnership with one of the biggest automakers in the world.

Where Nikola will find new roads

Shares of Nikola soared almost 40% Tuesday morning. Investors were excited about the huge news involving the electric vehicle maker and auto giant General Motors (GM -5.08%).

The two companies announced their strategic partnership Tuesday morning. Under the terms of the deal, General Motors will make "in-kind contributions" to the venture, and in exchange will receive an 11% equity stake in Nikola worth roughly $2 billion. GM will also have the right to appoint a member to Nikola's board of directors. GM and Nikola anticipate a quick completion, expecting to close on the deal by the end of September.

Nikola Badger pickup truck seen from above, on a road near a cobblestone patio.

Image source: Nikola.

The specifics of the deal have huge implications for Nikola. The upstart recently started taking preorders for its Badger pickup truck, but ramping up actual production had been a bit of a question mark for Nikola. As part of the deal, GM will provide engineering and development work that will help get the Badger ready for full production. In addition, Nikola will be able to draw from GM's wide array of parts and components.

How GM wins

General Motors also gets some useful benefits from the venture. Nikola will use the GM Ultium battery system as well as fuel cell technology under the Hydrotec brand. Although the partnership will begin with the Badger, Nikola and GM will work together on the electric vehicle specialist's commercial truck programs as well.

Nikola founder and CEO Trevor Milton highlighted the advantages of working with GM, citing "decades of supplier and manufacturing knowledge, validated and tested production-ready EV propulsion, world-class engineering, and investor confidence." Milton's also happy that GM now has a vested interest in seeing Nikola win in its battle against Tesla and other EV manufacturers.

GM CEO Mary Barra put the deal in a larger context. She noted that GM is trying to build scale in order to cut its battery and fuel cell costs, essentially acknowledging that its strategy will be to undercut Tesla on price. Moreover, extending fuel-cell technology to the commercial truck segment will be an important milestone for General Motors.

GM stock rose 7%, while Tesla was down 15%. However, investors shouldn't think that the Elon Musk-led company is quaking in its boots. Much of the stock's drop Tuesday was likely due to S&P Dow Indices choosing not to include Tesla in the S&P 500.

Nevertheless, the Nikola-GM partnership at least makes a contest out of the race toward making the transition from fossil fuel-powered vehicles to electric vehicles. Tesla still has a huge lead, but having Nikola in its stable will give GM a nimbler approach than the Big Three auto stock had on its own.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
GM
$35.48 (-5.08%) $-1.90
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$275.33 (-4.59%) $-13.26
Nikola Corporation Stock Quote
Nikola Corporation
NKLA
$3.89 (-4.66%) $0.19
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,590.41 (-1.62%) $-486.27
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,693.23 (-1.72%) $-64.76
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$10,867.93 (-1.80%) $-198.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.