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If Nikola goes up in flames, GM might only get singed, analysts say

By Jamie L. LaReau, Detroit Free Press on

Published in Business News

DETROIT - General Motors' pending partnership with electric vehicle maker Nikola Corp. could result in a dream team or a deal with the devil.

Either way, GM CEO Mary Barra is not backing down from it despite rumblings on Wall Street that perhaps GM failed at its due diligence.

Last week, Hindenburg Research published a 67-page report accusing Nikola of being an "intricate fraud." Nikola has disputed the claim.

Now the U.S. Securities and Exchange Commission and Department of Justice are examining the allegations against Nikola, according to media reports. The news has crushed Nikola's stock price and cast a shadow over its pending deal with GM. But GM leaders stand by their plan and some auto industry experts give the union their blessing, too.

"The biggest risk right now is the risk of a huge PR black eye for (GM CEO) Mary Barra and the firm," said Morningstar's David Whiston. "Even though there isn't much financial risk right now because the deal is initially cashless for GM, it still looks really bad optics-wise should Nikola be charged with criminal fraud or go bankrupt. But as a GM analyst, I'd rather have that risk than GM actually wastes billions of dollars buying Nikola stock."

Analyst Sam Abuelsamid of Guidehouse Insights in Detroit agreed, saying GM has more to win than to lose.

 

"It's all potential upside. The worst case for GM is that they take a minor reputational hit if things go sideways with Nikola. They're not putting any cash in this deal," Abuelsamid said. "They have a customer who will potentially buy their fuel cells and batteries. In return, they get a stake in a company that potentially has an upside valuation, compared to what it's actually done."

The deal broker

Just nine days ago GM told the world it was taking a stake in Nikola.

"This is the first commercialization of our fuel cell technology and there were initial introductions made by Steve Girsky," Barra told the media at the time.

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