General Motors (NYSE: GM) has penned a memorandum of understanding with Nikola (NASDAQ: NKLA) that significantly scales back the former's involvement with the startup. GM has withdrawn its investment in Nikola and will no longer be manufacturing its Badger pickup.
Things were looking cheery for Nikola back in September when the group secured a lucrative deal with General Motors. Not only had the auto giant agreed to produce the company's electric truck, but it had also agreed to supply fuel systems and to an 11% stake in the company. Then came revelations by an investor that the company was engaging in fraud, driving Nikola's shares down and causing its CEO to step down.
On Monday, likely in response to those accusations, GM announced that it would be altering the terms of its deal with Nikola, distancing itself significantly from the embattled company. No longer is GM manufacturing the Badger pickup, nor is GM seeking a stake in Nikola. GM will, however, still provide Hydrotec fuel cell systems to Nikola.
"This supply agreement recognizes our leading fuel cell technology expertise and development," said Doug Parks of GM. "Providing our Hydrotec fuel cell systems to the heavy-duty class of commercial vehicles is an important part of our growth strategy and reinforces our commitment toward an all-electric, zero-emissions future."
However, the memorandum of understanding is non-binding, meaning that GM is under no obligation to Nikola. With much of the previous deal off the table and the Badger no longer guaranteed for production, Nikola has begun refunding deposits placed on future orders. Production of the Badger required a third party like GM, leaving Nikola with no means of producing its electric pickup.
This week is looking to be rough for Nikola. Not only has the deal with GM fallen through, but the company's shares are now eligible for sale after a trading prohibition expired on Tuesday. On Monday, Nikola shares trended 7.7% lower, likely in response to the revised deal. Shares trended even lower on Tuesday after the prohibition expired, with Nikola losing an additional 14.9% in value. Nikola shares are down about 17.9% for the week as of market close on Wednesday.