GM to invest $2B in Nikola, take 11% stake

Shares of Nikola and GM surged Tuesday after announcing that GM would invest $2B in Nikola, holding a 11% stake in the electric vehicle company. GM will engineer and produce Nikola’s ‘Badger’ pickup. The Final Round panel breaks down the details

Video Transcript

MYLES UDLAND: Again, another washout in the market, especially tech, and we called out the decline we've seen in shares of Tesla. The stock off about 20% today. But the company also coming under pressure for some news out of GM and Nikola. GM shares are up some 7%-- 8% right now. Shares of Nikola, the electric car-- the electric truck company which actually doesn't make any trucks yet, that stock's up some 38% on this news. And for more on the whole story, we're joined now by Yahoo Finance's Brian Sozzi.

BRIAN SOZZI: Yeah, Myles, this is quite the story. And about 8-- 8 billion left until Nikola touches Ford's market cap. Go figure that one out, guys. But to your point, we talked to Trevor Milton, executive chairman of Nikola, and General Motors Chairman and CEO Mary Barra this morning on what this new deal exactly means to both of their companies.

MARY BARRA: Working together, this partnership, it's going to allow both of us, I mean, to-- to really grow value and create value for our shareholders. When you look at the technology that we bring, as Trevor said, it's-- it's validated, well-engineered, and we're ready to go. So this announcement is about a partnership with two companies that have a shared belief in the future of zero emissions, but it's also about leveraging technology, driving down scale, and really accelerating both of our activities. So we couldn't be more excited.

BRIAN SOZZI: Yeah, Myles and Seana, I-- I see our very own editor-at-large Dan Roberts in the-- in the digital green room, and I know he's, like, probably excited about the new 906-horsepower Badger. I could imagine him pulling it up into the woods, filling it out with his new Yeti coolers, packing it with iced espresso, and calling it a day. This Badger truck looks to be the real deal.

DAN ROBERTS: Yeah, Sozzi, I'm actually curious, you know, we've heard a lot of sort of staid commentary there from Mary Barra, kind of PR speak. I wonder if you can deduce why they chose Nikola when you've got a lot of options here on the market? I mean, we talk endlessly about Tesla, but look, there was also Fisker, which went public via SPAC recently. I mean, so many names want to get in on this space, and it's just hard to really see who's going to be the ultimate winner. And it's also hard when you look at companies that don't have a car out yet.

BRIAN SOZZI: Mm-hmm. In a weird way, Dan, it's-- not a lot of companies are left. And by that I mean, Ford has put a lot of money into Rivian, Amazon is investing in Rivian. And there you have Nikola out there floating around with these big cool semi trucks and this 906-horsepower pickup truck, and you have General Motors. A lot of cash on its balance sheet and not a lot of respect amongst the Wall Street community with regard to their electric vehicle technology. So the marriage, at least right now, makes sense on paper.

MYLES UDLAND: Well, Sozzi, I guess I'm just a little bit surprised as well. You mentioned that there's not a lot of companies left. But for GM to take, you know, a 11% stake in the company for $2 billion, they-- they're putting the valuation of Nikola at-- at $20 billion, right? I mean, I think the market had gotten there for all kinds of weird reasons, some of which may have involved-- I don't want to go down this rabbit hole-- some of which may have involved high schoolers on Robinhood.

But, I mean-- but in seriousness, you know, Nikola's came out as a SPAC. Everyone's like, what the heck is this company? Then the stock quadrupled, then it doubled again, then it tripled a third time. And now GM has come in and said, actually, yes, you are-- you are worth $20 billion. I'm-- I'm a little surprised they didn't get kind of a discount for providing this amount of capital to a business that's going to need a lot of it.

BRIAN SOZZI: Make a heck of a point, Myles, but what you're seeing here, I think, is Mary Barra, GM CEO, noting that Nikola actually has orders. Sure, they haven't produced anything yet, but they have thousands of orders for these semi trucks, what appears to be initially strong demand for the Badger. And all GM has to do is run the Badger through its pickup-- through its manufacturing plants, a lot of plants that are still not back to full capacity.

So for them, I'm sure it makes sense. And also let's keep in mind, Barra is the one that made a-- a good early bet on Lyft, and it worked out for them. She made that bet, $500 million in 2016. They sold that stake in early this year. So she's not a newbie when it comes to making bold bets and-- and thinking three to five years out.

MELODY HAHM: And, Brian, I think you touched upon this during the interview, but what are GM's ambitions internally for developing their own EVs, for continuing to invest there? Are they trying to basically outsource innovation right now?

BRIAN SOZZI: It's interesting. We-- we did ask Barra, excuse me, about what her electric vehicle plans are. It was just a month ago where she, I think, teased Wall Street with the potential of spinning out their electric vehicle operation, and she used the word several times in our interview, "validate." "This validates our technology." This is-- this could be the first step in them spinning out this electrical-- electric vehicle division. But first, they needed to commercialize this, and this gives them that first step.

MYLES UDLAND: All right, Brian Sozzi, absolutely massive week for you, my friend. We got this news. Lulu earnings tonight, Peloton Thursday after the-- the bell. This is just-- it's all coming together for you.

BRIAN SOZZI: It's great to be alive.

MYLES UDLAND: All right, Brian Sozzi, host of "The First Trade" here at 9:00 AM, Yahoo Finance. Soz, thanks for joining the program.