GM to make electric vehicle, supply batteries for Nikola

General Motors announced on Tuesday its second major electric vehicle partnership this month, this time a $2 billion deal with startup Nikola.

GM will take an 11 percent ownership stake in the Phoenix-based company and will engineer and build Nikola's Badger hydrogen fuel cell and electric pickup trucks. The Badger is expected to be in production by the end of 2022.

GM also will help reduce the cost of Nikola's other vehicles, including heavy trucks, and Nikola will use GM's battery system and hydrogen fuel technology.

In exchange for the 10-year deal, GM will get $2 billion in Nikola's newly issued common stock. The stock will be issued in three increments through 2025.

News of the deal sent shares of both companies surging despite a broader-market downturn. Nikola's shares jumped $14.50, or 40.8 percent, to close Tuesday at $50.05. GM advanced $2.38, or 7.9 percent, to end the day at $32.38.

The move sets up GM for a new revenue stream and possibly a change in its business model, essentially making it a parts supplier to other companies in exchange for electric vehicle frames, batteries, controls and components.

GM has been under pressure from Wall Street to monetize its electric vehicle technology more quickly. Industry analysts have suggested spinning off its EV unit as a separate company.

GM CEO Mary Barra said on a conference call that the Detroit-based automaker has a "platform that others can use that's going to give us scale and help us drive efficiency."

She said GM's electric vehicle platform and batteries are attractive to other companies, giving GM a huge opportunity.

Barra declined comment when asked whether GM was in talks with any other companies.

Nikola will be responsible for the sales and marketing of the Badger, but it will be built on GM's new battery electric truck underpinnings and use GM fuel cell and battery technology. GM also will supply batteries for other Nikola vehicles including heavy trucks.

GM has its own battery electric truck, the GMC Hummer, set to hit the market a full year ahead of the Badger. The deal is the second major partnership announced by GM this month as it lines up companies to share in the costs of developing electric and autonomous vehicle technology.

One week earlier, GM announced it was teaming up with Japanese automaker Honda to share the costs of building vehicles powered by batteries and internal combustion engines.

GM expects to get more than $4 billion in benefits from the deal with the stock as well as from contracting to manufacture the Badger.

GM also will get supply contracts for batteries and fuel cells and electric vehicle regulatory credits that can be used by the automaker to comply with fuel economy and pollution standards, or be sold to other companies.

Nikola founder and Executive Chairman Trevor Milton said the agreement relieves his company of the expense of building another factory to make the Badger, which is a little larger than a Chevrolet Silverado.

Nikola, however, will keep building a US factory in Coolidge, Arizona, to make heavy trucks.

Nikola has yet to make a profit and lost $86.6 million in the second quarter. It expects to save over $4 billion in battery and powertrain costs over the next decade thanks to the GM deal.

Wedbush analyst Daniel Ives, in a note to investors Tuesday, wrote that the deal is a huge step forward for Nikola, giving the company credibility with Badger production and its hydrogen fuel cell and semi truck ambitions.

"There have been many skeptics around Nikola and Trevor Milton's ambitions," he wrote.

"Those concerns now get thrown out the window with stalwart GM making a major strategic bet on Nikola."

Nikola, founded in 2015, became a public company in June after a merger with VectoIQ, a publicly traded special-purpose acquisition company.