NKLA Stock: Why Red-Hot Nikola Shares Are Plunging Today

Get your favorite breakup playlist ready, because Wall Street needs it. It turns out that General Motors (NYSE:GM) and Nikola (NASDAQ:NKLA) are scaling down their partnership, and NKLA stock is plunging as a result. So what do investors need to know today?

The Nikola (NKLA) website homepage on a cell phone screen.

Source: Stephanie L Sanchez / Shutterstock.com

Well, the love story started back in early September. Right as Nikola was picking up steam as a battery and fuel cell electric vehicle play, GM swooped in. Together the duo was set to work together, leveraging production capabilities and tech. Perhaps most importantly, GM agreed to help Nikola produce its Badger pickup truck.

Then, short-seller Hindenburg Research threw NKLA stock, and its deal with General Motors, for a major loop. In the report, Hindenburg said that Nikola was built on lies. Ramping things up further, the firm outlined a variety of allegations, including how executives made misleading statements over company progress and upcoming announcements. Unsurprisingly, this was bad news for Nikola.

So what happened today? Well, even after the Hindenburg report came out, many investors were still hopeful. General Motors had yet to say anything about the partnership, and everyone was waiting for an update. That update came this morning, and a few key things were missing since September.

What do you need to know? Although General Motors and Nikola will still be working together on a handful of electrification goals, the partnership has been scaled back significantly. And most importantly, General Motors will not be taking an equity stake in Nikola. Nor will it be helping Nikola produce its Badger pickup truck. As a result, Nikola will start to refund order deposits for the Badger.

With that news in mind, it makes sense why NKLA stock is plunging more than 20% today.

Is This the End for NKLA Stock?

There is no denying that this is bad news for Nikola. After captivating investor attention early on, the company has faced pressure to deliver on its big plans for fuel cell electric trucks and its Badger pickup. A partnership with GM would be a high-profile way to do just that. It would also have given Nikola a serious leg up, allowing the newly public company to leverage tech from a legacy player.

So what should you do here? Importantly, General Motors and Nikola are still working together. Nikola will work to incorporate the GM Hydrotec fuel-cell system in its Class 7 and Class 8 semi-truck vehicles. Additionally, the two companies will consider incorporating the Ultium battery system from GM in those same vehicles. Prototype testing of these semi-trucks should begin at the end of 2021.

It is far too early to tell what Nikola will make of this situation. Can it take this blow and come out stronger? Perhaps. Although investors have been excited over its Badger pickup truck, much of the company mission revolves around disrupting and electrifying the trucking industry. It will still have the fuel-cell and maybe even battery systems from GM. And as we have reported recently, there is a lot of bullish sentiment behind FCEVs.

For now, mourn what could have been between General Motors and Nikola. After that, keep a close eye on NKLA stock. Can it prove itself?

On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Sarah Smith is a Web Content Producer for InvestorPlace.com. 

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/nkla-stock-why-red-hot-nikola-shares-are-plunging-today/.

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