GM has no reason to back out of its one-sided deal with Nikola
“For GM, there’s really no downside to the deal,” one expert told us. …
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GM CEO Mary Barra on Monday signaled that the company is standing by its deal to produce Nikola’s Badger pickup truck.
“The company has worked with a lot of different partners and we’re a very capable team that has done the appropriate diligence,” Barra said during a conference with RBC Capital Markets on Monday.
GM is standing by Nikola despite recent revelations that the startup misled the public about the capabilities of its first truck, the Nikola One. At its 2016 unveiling, founder Trevor Milton claimed that the Nikola One “fully functions.” But on Monday, Nikola admitted that the company never had a working prototype of the truck. The company acknowledged that a 2018 promotional video showed the truck rolling down a shallow hill—not driving under its own power.
So why isn’t GM backing away from the Nikola deal? It poses very little risk for GM. GM isn’t investing a dime in Nikola; instead, all the money will flow the other way.
“For GM, there’s really no downside to the deal,” said Sam Abuelsamid, an auto industry analyst at Guidehouse. “It’s all upside.”
The deal’s terms are extremely friendly to GM
Under the deal, Nikola will pay GM up to $700 million to cover the cost of building manufacturing capacity for Nikola’s Badger truck. Nikola will then pay GM even more money to manufacture the vehicles on a cost-plus basis.
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