News Analysis: Evidence Mounts That Nikola Badger Is Roadkill

·6 min read

The much-hyped Nikola Badger electric pickup looks like an endangered species. It is absent from the electric truck startup's road map of milestones, and a delayed manufacturing deal with General Motors Company (NYSE: GM) points to its demise before a physical prototype is ever revealed.

The Badger was not in Nikola Corp. (NASDAQ: NKLA) business plan a year ago. And it isn't there now. Founder Trevor Milton used it as a buzz-building tool for the company following the reveal of rival Tesla Inc. (NASDAQ: TSLA) Cybertruck, a polarizing design that the electric truck leader plans to build at a new plant in Austin, Texas.

"A lot of people didn't like the look of the Cybertruck, including me," Nikola CEO Mark Russell said on the company's earnings call on Aug. 4. "I think it looks like a doorstop. But they got lots of reservations for it. So Trevor just released the concept that we had for the pickup truck."

Nikola put the Badger image on the company website where 89,000 people expressed interest.

"That's when we got serious about it and said, ‘I think the world wants us to build this darn thing,' but it wasn't in the plan before," Russell said. "So we said, ‘Hey, if we're going to do it, we're going to need a partner."

Mum's the word

Nikola began taking Badger deposits of up to $5,000 on June 29. It promised the truck, priced between $60,000 and $90,000, would be revealed at NikolaWorld 2020 in December in Phoenix. Citing Arizona rules against large gatherings during the pandemic, Nikola indefinitely postponed the event on Wednesday.

A spokeswoman declined Thursday to say how many deposits the company received for the Badger or how much money was collected.

In an interview with FreightWaves on Wednesday, Russell declined to answer when asked whether Milton's association with the Badger hurt its prospects. He said only that the Badger was part of the ongoing GM discussions he could not characterize.

The competition for electric pickup trucks is huge. In addition to the Cybertruck, established automakers GM and Ford Motor Company (NYSE: F) and startups Rivian and Lordstown Motors plan entries.

Nikola does not have a distribution or sales network for the Badger, which would remain a Nikola product even with GM as its contract manufacturer. It also needs money to pay GM for each truck. That is $700 million based on 50,000 trucks, according to the U.S. Securities and Exchange Commission (SEC) filing on the GM-Nikola deal.

All of Nikola's current cash is dedicated to construction of its $600 million assembly plant in Coolidge, Arizona.

"As we execute on the roadmap we've laid out, that should allow us to go back to the market and get additional capital," Russell told FreightWaves on Wednesday.

The GM negotiations

People close to the situation told FreightWaves that Milton was "hell bent" on getting a manufacturing partner for the Badger. It became part of negotiations with GM about supplying batteries and fuel cells for Nikola's Class 7-8 heavy-duty trucks in North America.

When Nikola and GM announced a deal Sept. 8 under which GM would get an 11% ownership in Nikola in exchange for using GM's battery-elect truck platform, the two sides said they expected the deal to close before Wednesday.

Those talks are continuing after Nikola's stock cratered following a short seller's report Sept. 10 that alleged years of fraud and misrepresentations by Milton. Ten days later, Milton resigned as executive chairman and left the company.

The $2 billion GM was to receive was based on nearly 48 million new shares priced at $41.93. Nikola shares fell into the mid-teens last week. They are recovering since the company issued a lengthy press release Wednesday laying out milestones the company plans to achieve through 2023.

Nikola has about 400 million outstanding shares. Diluting existing shareholders by issuing new shares is a trap that electric delivery van maker Workhorse Group (NASDAQ: WKHS) found itself in after listing on the NASDAQ. Still Workhorse shares are rading near its record high as it is finally producing vans.

Will GM get more of Nikola or walk away?

Even at a price of $23.81 at 2 p.m. EDT on Thursday, the value of the deal for GM is well below the agreement. Either side can walk away if it does not close by Dec. 3. It is possible that GM could seek more shares and a larger stake in Nikola, though the original deal accounts for share price movement.

GM has no cash in the Nikola deal, so it has little downside. It negotiated to get 80% of zero emission vehicle (ZEV) credits that Badger sales generate. Those credits help offset pollution penalties generated by GM's large trucks and SUVs.

"This arrangement initially seemed like a pretty good deal for both parties," said Mike Ramsey, a Gartner Inc. vice president who follows autos and mobility. "But as it has become more complicated with recent revelations, GM is more likely to seek more ironclad certainty that they will not be embarrassed or have some other unexpected downside going forward."

Batteries and fuel cells

The other part of the Nikola-GM deal — supplying batteries and fuel cells to Nikola's heavy-duty trucks — got less attention. But it might mean more to GM as it provides entry into the heavy-duty trucking space where the company does not compete.

"I think the fuel cell stuff is probably the bigger incremental value to GM," Sam Abuelsamid, principal analyst at Guidehouse Insights, told FreightWaves. "This is their first real customer for them. So I think that's clearly got to be the priority."

GM would be happy to soak up assembly capacity with the Badger and capture the ZEV credits, he said. One downside for GM is that Nikola has the "cool kid" image that an old line manufacturer like GM lacks.

"Even though it's the exact same hardware, people that want to buy an electric truck might be more interested in buying from a Nikola than a GM," Abuelsamid said. "From Mark Russell's standpoint, it probably would be wise to drop the Badger and focus on the trucks."

Related articles:

Nikola battles back: Electric truck startup seeks to calm investors

GM deal with Nikola delayed beyond anticipated closing date

Nikola begins Badger electric pickup marketing push

Click for more FreightWaves articles by Alan Adler.

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