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 -0.55%) was down 405 points to 27,729. The S&P 500 (^GSPC 0.02%) dropped 58 points to 3,369, while the Nasdaq Composite (^IXIC 0.59%) was off 249 points to 11,063.

The electric-vehicle space has been a battleground for growth-seeking investors, as industry leader Tesla (TSLA -1.39%) has seen a number of new upstarts come into the space looking to stake their claims. Nikola (NKLA -2.35%) 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 -2.31%).

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.