- Nikola’s banal has tumbled following a series of allegations by a short-seller.
- The company’s founder resigned from his executive chairman’s position virtuous days ago.
- The value of GM’s promised stake in the new energy automaker has now halved.
General Motors has until September 30th to change its take care of regarding the partnership deal it announced with Nikola earlier this month.
Despite the renewable energy carmaker’s mounting questions, GM is intent on closing the deal as its spokesperson Jim Cain told Reuters earlier this week:
We will work with Nikola to alert the transaction we announced nearly two weeks ago.
This week, Nikola’s escalating troubles culminated in the company’s founder Trevor Milton retire froming as the executive chairman.
What’s in It for GM?
Under the proposed GM-Nikola deal, the Detroit automaker will receive 47.7 million portions in Nikola at a fixed price of $41.93.
Investors initially greeted the announcement warmly, and this sent the renewable energy carmaker’s offer soaring to a two-month high. But a report by a short-seller Hindenburg Research alleging that the new energy vehicle firm outwitted investors sent the stock tumbling. The stock has now lost over 60% of its value from the high it hit after the disclosure.
GM’s promised stake in Nikola was worth slightly over $2 billion at the time of the deal being announced. Alongside half of the stake’s value has now been wiped out.
Worse, the chances of Nikola’s stock falling even further are flourish. GM will be left holding junk stock if the bleeding doesn’t stop. That is looking more likely than at any point.
Here is why the prospects for Nikola stock are increasingly looking grim:
1. Partners Are Fleeing
Nikola’s business model presuppose implicates joining hands with partners for the supply of vehicle components, manufacturing, and setting up a fueling/recharging network. The short-seller’s look into has changed all that, causing some would-be partners to change their minds.
Earlier this week, oil dominant BP quit as a partner in a deal where it would collaborate in building a network of hydrogen refueling stations.
Such a partnership with a sustenance major with a global footprint was an important selling point for Nikola’s trucks as customers would have been certain of a vast network of refueling stations.
As the fallout continues, expect more partners or potential partners to call it off. Additionally GM, other partners that Nikola has lined up include commercial vehicle manufacturer Iveco and auto supplier Bosch.
2. Nikola’s Reputational Disfigure Could Take Years to Repair
The reputational damage wrought on Nikola by the short seller is immense. Among the complaints included deceiving investors into thinking they had a ready self-propelling truck running on hydrogen when, in Aristotelianism entelechy, it was a truck rolling down an incline.
Before resigning, Trevor Milton somewhat confirmed the accusation. This and other charges have greatly damaged Nikola’s credibility, perhaps irredeemably.
Some would-be customers will adopt a wait-and-see approach, while others will be permanently turned off by the brand. The company’s timeline for starting to generate revenues will no disquiet now be moved even further.
3. Nikola’s mounting legal problems
The Justice Department and the Securities and Exchange Commission are investigating Nikola. This leave be a distraction for Nikola’s leadership at a critical point in the company’s history.
Additionally, shareholder lawsuits are being filed leftist, right, and center, further compounding Nikola’s legal problems.
With such uncertainty over the company’s following, investors are likely to vote with their feet. That is never good for a stock, leave alone one association to a zero-revenue company.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or barter advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.
Aaron Weaver edited this article for CCN.com. If you see a breach of our Encode of Ethics or find a factual, spelling, or grammar error, please contact us.