electric vehicles hydrogen mobility

Nikola and GM: A Power Couple?

Nikola (NASDAQ: NKLA) and General Motors (NYSE: GM) made some really big news. When GM announced it would be purchasing an 11% stake in Nikola, it was pretty eye opening. Especially for fans of hydrogen, since Nikola has been one of the most visible FCEV companies lately. Here are some key takeaways from the deal that have implications for the industry and for a long-term investor.

Nikola Badger

Let’s talk about the truck first since it appears to be the focal point of the deal. The performance specifications are pretty impressive and features a battery and fuel cell hybrid powertrain. That alone separates this electric vehicle from others in the market. If you just read the first two lines of the performance specifications, you’d think you were reading about a McLaren P1.

Performance specifications for Nikola Badger fuel cell truck
Source: Nikola Corp

Then if you look at the 600 mile range and combine that with the 8,000 lbs towing capacity, it starts to blow your mind. All in a zero-emission electric vehicle.

Nikola Badger fuel cell truck
Nikola Badger

So overall, very impressive design (i’m a fan, but lots of haters too) and specs (on paper), but manufacturing it is a whole different ball game. The powertrain of the Nikola Badger is where GM can really lend a hand. And GM is an old hand when it comes to experience in automotive engineering and manufacturing.

Nikola the Company

Nikola is pretty much a startup company. It was founded by Trevor Milton in 2014 and has virtually no revenues to speak of. Trevor, however, is a billionaire. So like many new companies in the EV and clean energy sector, Nikola has been enjoying a ride on the hype train. As a publicly traded company now, they have been labeled an “exited unicorn.” The question for many is whether they can turn hype to reality.


Nikola funding raised over time

Nikola has cumulatively raised $2.5 billion from investors, including Bosch, Hanwha Corporation, CNH Industrial and, most notably, GM. For some perspective, its valuation at IPO was $12 billion.


With the announcement of GM taking a $2 billion equity stake in Nikola, I believe this marks the start of tremendous growth for FCEVs. GM will provide valuable engineering and validation to Nikola’s technology. With that, Nikola expects to save over $1 billion and also over $4 billion in battery and powertrain costs over 10 years.

GM, on the other hand, will be the provider of its Ultium battery technology and fuel cells for the Badger. It will also be the contract manufacturer of the Badger and alongside of that, it will receive EV credits over the contract life. The Badger is expected to start production by the end of 2022.

Nikola Founder, Trevor Milton, commented:

By joining together, we get access to their validated parts for all of our programs, General Motors’ Ultium battery technology and a multi-billion dollar fuel cell program ready for production. Nikola immediately gets decades of supplier and manufacturing knowledge, validated and tested production-ready EV propulsion, world-class engineering and investor confidence. Most importantly, General Motors has a vested interest to see Nikola succeed.

The Hydrogen Future

Mutually Beneficial?

The Nikola GM strategic partnership is a huge boost for both companies hydrogen FCEV ambitions. GM has not been able to get much traction out of its fuel cell research, but now the patience has paid off. Nikola gives GM a highly visible means of bringing its technology to market. It also provides GM with a infusion of freshness that’s been much needed for years. To be seen as a forward thinking company could be the spark that could transform a legacy car maker.

Nikola now gets credibility that it has the wherewithal to deliver on its promises. It has a promising future, but it will have to figure out its strategy to become profitable in the long run. It’s lofty valuation is indicating high expectations for Nikola to deliver on growth. Which is why I’m a bit hesitant on Nikola for a couple of reasons. First, it really has no moat. Can it survive just as, essentially, a design and marketing company? Second, without any integration, what will margins look like?

The Long Game

If you’re an investor, I’d first focus on the merits of the hydrogen economy becoming a reality sooner than later. Hone in on companies that leverage the advantages of hydrogen fuel and have moats. I like to always remind myself of what sets hydrogen fuel cells apart from battery electric propulsion:

  • Ultimate energy carrier
  • High energy density = longer range
  • Faster refueling – good for high duty-cycle vehicles
  • Infrastructure scales better

In a whitepaper by Deloitte and Ballard, they looked at profitability of logistical truck operations across vehicle propulsion type. Their use-case analyzed gross margins of STNE, a company in Shanghai, based on total cost of ownership over a 10 year period. They found that fuel cell electric vehicles broke even with battery electric vehicles by 2025. Surprisingly, FCEVs broke even with ICE vehicles the next year.

Gross Margin of Fuel Cell Logistical Truck

Breakeven point when fuel cell trucks are equal to battery electric and internal combustion engine trucks
Source: Deloitte and Ballard

In fact, the primary drivers of the breakeven forecast was due to fuel cell system cost reductions and economies of scale in producing fuel cell trucks.

This is one example of hydrogen playing a key role in the transportation industry. Hydrogen also performs well in bus transit, freight trucking, and forklifts.

Who Will Lead?

While Nikola is carving out their space in trucks and commercial fleets, the underlying technology isn’t theirs. Rather, companies like Plug Power which I’ve written about before have vertical integration and are positioned for a range of markets. From forklifts, drones to utilities, Plug can pivot nimbly to new applications. Ballard (NASDAQ: BLDP) is also another name to watch. They’re a known quantity and have been around for 40 years.

All in all, there’s a lot to be hopeful for the hydrogen economy. There are also companies that are worth paying attention to that have staying power. I’m not saying hydrogen will take over everything, but the pie will continue to grow and hydrogen will have a big piece of it.

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