Romeo Power (NYSE:RMO) stock rose 23% in early trade Aug. 1 after struggling electric vehicle maker Nikola (NASDAQ:NKLA) said it would buy it for $144 million in stock.
The deal values Romeo at a 34% premium to its July 29 close. Nikola stock is currently up 2% to $6.35 on the news.
Romeo assembles battery packs for large trucks using lithium-ion cells from other companies. Nikola, which hopes to sell 300-500 of its semitrucks this year, is Romeo’s largest customer.
As part of the deal, Nikola is immediately shipping Romeo $35 million to keep operations going until the deal closes. Nikola claims it will save $350 million a year from the acquisition.
A Hard Road
Many electric vehicle companies, like Nikola, have had a hard road since the depths of the pandemic, which turned out to be their market peak.
In June 2020 Nikola was trading at $65.90 per share. The company at one time was worth more than Ford Motor (NYSE:F) without having sold a single electric or fuel cell truck.
Founder Trevor Milton was indicted on fraud charges last year. That trial is due to start in September. Nikola paid $125 million to settle U.S. Securities and Exchange Commission (SEC) fraud charges related to its SPAC debut in December.
With capital scarce, Nikola is hoping its proposition to increase its authorized shares from 600 million to 800 million will help it secure new financing. Voting on the proposal closes at midnight.
What Happens Now for RMO Stock?
Nikola is still fighting for recognition, bringing prototypes of its electric and fuel cell trucks to Washington last month. It claims its battery-operated vehicle can go 350 miles on a single charge.
Nikola began production from an Arizona plant this year, delivering 11 vehicles. It is due to report second-quarter numbers Aug. 4. Analysts are expecting it to announce a loss.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
