What happened

Shares of electric-truck start-up Nikola (NASDAQ:NKLA) fell sharply on Monday morning, after the company said that a much-anticipated deal with General Motors (NYSE:GM) will be narrower than expected and will not include an equity stake for GM. 

As of 10 a.m. EST, Nikola's shares were down about 22.4% from Friday's closing price.

So what

Nikola and GM said on Monday morning that they have signed a "non-binding Memorandum of Understanding" that outlines a deal in which Nikola will buy hydrogen fuel cells from GM, and the two companies will work together to incorporate the fuel cells into Nikola's electric semi trucks.

That's a shadow of the original deal between the two companies, announced in September, in which GM would have taken a $2 billion stake in Nikola in exchange for engineering and building the start-up's Badger electric pickup truck. 

A Nikola Tre, an electric semi truck

GM will supply fuel cells for Nikola's semis, but it won't supply batteries, it won't take a $2 billion stake -- and it won't build the Badger pickup. Image source: Nikola.

That deal was put on hold just a few days later, after a short-seller alleged that Nikola had misled investors by exaggerating the state of its technology. Nikola's stock price fell sharply after the short-seller's report was published, and Nikola founder Trevor Milton departed the company amid a federal investigation. 

Nikola said that the Badger pickup will not be built and that it will refund deposits made by buyers waiting for the truck. 

Now what

Auto investors should take note of the timing of this announcement. While GM and Nikola had given themselves a deadline of Dec. 3 to come to a deal, there was a reason to announce it today: Some Nikola insiders -- including Milton -- will be able to sell shares starting tomorrow, Dec. 1, when a post-public-offering "lockup" expires. 

By announcing the outline of the likely deal today, Nikola ensures that insiders who choose to sell shares tomorrow won't have to face questions as to whether they were trading on nonpublic information. 

As for investors in Nikola stock, this announcement resets expectations of the company's likely growth over the next few years -- but assuming that an actual deal is signed, it will at least ensure that the company will have access to fuel cells for its trucks. 

That's worth something, but we may be in for a volatile week while the market figures it all out. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.