GM's embarrassing deal with Nikola

Earlier this week, Nikola's CEO said the company's plans are intact even if GM deal unravels. This is not surprising for me. He and the other Nikola executives are begging for it to be November 30th already. That's when they will be able sell their shares.

For me, Nikola is all hype and no substance. Most of its value is in the idea, the concept, and that simply can’t justify the $20 billion valuation it was at not long ago, or even the $7 billion valuation where it is at now. After all, it's a company that does not have a product yet, and won't have one anytime soon if some of the accusations about its technology from short-selling firm Hindenburg Research are true. Per the Hindenburg report, Nikola hyped its technology to attract investors and land partnerships with other auto makers, including General Motors (GM).

Following the report, Nikola's founder and former CEO resigned. Even though the stock has bounced from its lows on the news of the resignation, I still don't like Nikola's prospects and I think I made that abundantly clear in a previous post on SPACs. Nikola and many other electric vehicle (EV) companies that went public through SPACs are the next bubble. I understand why investors may be enticed to continue owning Nikola, a company that has often been compared to Tesla and has billed itself as revolutionizing transportation, with its electric-battery and hydrogen-powered trucks. However, in the case of Nikola there are red flags that investors have to take seriously and sell the stock quickly to contain the losses. 

This is brings me to the other party in this partnership - GM. The deal with Nikola shows how far from grace GM has fallen. This embarrassing deal with an unproven start up like Nikola reveals just how little confidence GM has to beat Tesla. First, it's very obvious that the GM management team didn't do any due diligence and rushed into the partnership with the flashy start-up. In fact, when the deal was announced, many questioned what Nikola was bringing to the partnership except for its flashy status. After all, it's GM that will engineer and build the Nikola vehicles, and the vehicles will use GM batteries - not Nikola's. 

Many including Credit Suisse and Barclays claimed that the deal is a huge validation point for GM's EV strategy - it proves that GM has a robust technology and it's able to market and sell it to other automakers. However, for me the deal is an embarrassing show of insecurity. A big demonstration that GM does not believe in itself. It's a clear sign that GM lacks the confidence to stand up tall and promote its own creations.

GM is the company behind the iconic Corvette, Camaro and Hummer. I know it has a daring and innovative edge buried somewhere deep in its DNA. I hope that GM learns from this Nikola debacle and focuses on promoting its own creations and vehicles starting with the electric Hummer - scheduled to be revealed on October 20th.  This will help GM capture its glory days - not marketing stunts with flashy and unproven start-ups like Nikola. 

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.