Nikola Corporation (NASDAQ:NKLA) Explodes On General Motors Company EV Deal And Refuse Market Opportunity

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The theme in the auto industry has been electric for the better part of the year. It thus did not come as a surprise that Nikola Corporation (NASDAQ:NKLA) popped by more than 30%, on the junior auto company confirming a strategic investment and partnership with auto giant General Motors Company.

Regulatory filings indicate that the company has entered into a subscription agreement and will conversely issue 42.7 million shares of common stock to GM valued at $2 billion. Likewise, GM will end up with an 11% stake in the emerging electric vehicle company.

While Nikola did pop to record highs of $93 a share in June, the GM strategic partnership is likely to fuel a bounce back after a recent sell-off. The stock is the subject of renewed investor interest after a long period of consolidation.

A rally followed by a close above the $50 a share level has opened the door for the stock to edge higher as bulls continue to jostle for positions in the emerging EV player. The $45 level appears to be the immediate support level supporting further upside action.

What Does Nikola Do?

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Nikola bills itself as an integrated zero-emissions transportation system provider. The company designs and develops battery-electric and hydrogen-electric cars. It also develops electric vehicle drivetrains, vehicle components, and energy storage systems.

Why is Nikola Exploding?

$2 Billion GM Partnership

While focus on the development of electric cars has been on Tesla Inc, Nikola might as well be a gem going by the $2 billion GM partnership. Its stock popped by more than 20% as Tesla imploded by more than 10%, on the same day, as it became clear the company is ready to ramp EV cars production with General Motors assistance.

Under the terms of the agreement, GM is to become the company's manufacturing partner for its electric pick-up dubbed the Badger. The electric pickup is to use GM's Ultium battery technology. Likewise, Nikola remains well-positioned to ramp up production to meet the strong demand for electric vehicles.

The company has already started taking pre-orders for the electric-pick up, underscoring the ready market. Tesla has enjoyed hefty valuations on meeting delivery targets in recent quarters and churning in some profits. Nikola is not expected to face any problems with the launch of an electric truck that stands out.

The electric pick-up will come with 906 horsepower and have a 600-mile range while using both battery and hydrogen fuel cells. Pricing for the electric vehicle version starts at $60,000 and $90,000 for the other model that includes a hydrogen cell.

Investors pushed the stock higher, given that the GM partnership could be a potentially game-changing deal for Nikola. For starters, the deal could save the company more than $4 billion in battery and powertrain costs over the next ten years. In addition, Nikola stands to profit from more than $1 billion in engineering and validation costs.

In addition, the deal not only cements Badger production credibility but also poised to influence a great deal Nicola hydrogen fuel cell ambitions. The company is also looking to flex its muscles in the electric semi-truck segment an area where Tesla is also making inroads.

Refuse Market Opportunity

In addition to the GM massive investment, Nikola has seen its sentiments in the market edge higher on securing an order to supply at least 2,500 electric-garbage trucks. The deal with Republic Services is for an undisclosed amount and could increase t0 5,000 units.

While the price tag of the electric truck is still unknown, Nikola is in for a huge payday as such trucks go for as much as $500,000 a unit. Garbage trucks offer the company a large area of the opportunity given that the company can implement its technology with less stringent design requirements.

Likewise, the refuse market is one of the most stable markets in the industry, expected to act as a reliable target market for many years to come. The fact that the company would be able to generate significant value from the deal, explains why investors pushed the stock up by more than 20%.

Bottom Line

Nikola growth metrics and long term prospects just received a boost given the strategic investment by General Motors. While the company is still pre-revenue, that is poised to change as it moves to ramp up production of its electric pick up to meet the growing demand. A deal with Republic, the second largest provider of recycling and waste services, also presents tremendous opportunities for the company to generate actual sales.

That said, the future can only be bright for the junior electric vehicle company as it moves to rival big players backed by a company of GM status. Likewise, it does not come as a surprise that investors are jostling for positions as the company appears to be trading at a discount relative to tremendous opportunities up for grabs and long term prospects.

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