What happened

Shares of electric vehicle start-up Nikola (NKLA -1.48%) dropped in market action Tuesday morning. But the source of the drop could arguably be considered excellent news for the company and its plans. As of 11:50 a.m. EDT, Nikola shares were down 7.6%.

So what

There are two pieces of news today that are related to the use of hydrogen in transportation, which Nikola is counting on for its long-term success. First, in what could be potentially considered direct competition for Nikola, the Jaguar Land Rover automotive brand announced it is developing a hydrogen fuel cell electric vehicle (FCEV) based on its new Land Rover Defender sport utility vehicle. Separately, General Motors and rail transportation leader Westinghouse Air Brake Technologies (Wabtec) announced a partnership to develop and commercialize hydrogen powered locomotives using GM's HYDROTEC hydrogen fuel cell systems.

A Nikola semitruck at a hydrogen fueling station.

Image source: Nikola.

Now what

In its first-quarter financial update provided in May, Nikola told investors construction of its Arizona manufacturing plant is on track, and the company reiterated that it plans to ship the first Nikola Tre battery electric vehicles (BEVs) to customers during the fourth quarter of 2021. Perhaps more critical for its long-term success, the company also said it expects to break ground on its first commercial hydrogen station this year, and to name additional hydrogen infrastructure and ecosystem partners.

In today's announcement that Jaguar Land Rover, which is part of global automaker Tata Motors, intends to develop its own hydrogen FCEV prototype, the company said, "Hydrogen-powered FCEVs provide high energy density and rapid refueling, and minimal loss of range in low temperatures, making the technology ideal for larger, longer-range vehicles, or those operated in hot or cold environments."

That statement, and the project, help to justify Nikola's ambitions to create a hydrogen FCEV semi-truck category along with the associated infrastructure. The fact that GM is planning to use its hydrogen fuel technology to power locomotives also helps rationalize the hydrogen fuel thesis. 

Investors are knocking Nikola's stock down today perhaps on the premise that deep-pocketed competition is on the way. But in the bigger picture, these announcements seem to help support the idea that there will be a large market for Nikola's business strategy.