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GM CEO Mary Barra. Photo by Chip Somodevilla/Getty Images

This week General Motors found itself having to defend a deal in which it can't lose — illustrating how distorted the markets have become over newly public electric vehicle companies.

Catch up quick: On Sept. 8, GM announced a strategic partnership with Nikola Motor Co., a high-flying startup with ambitions to build electric and hydrogen fuel-cell trucks, but no revenue. Nikola shares soared 40% on the news, and GM climbed too.

  • Two days later, Hindenburg Research, issued a scathing report accusing Nikola and founder Trevor Milton of fraud. Nikola called it a "hit job" by a short-seller and asked the SEC to investigate.

Lost in the entire flap was how favorable the deal is for GM, which has cutting-edge technology and ambitions of its own.

  • GM put up no cash but received an 11% stake in Nikola (worth $2 billion the day of the deal, but only $1.4 billion after the report).
  • Nikola will pay GM $700 million to manufacture up to 50,000 Badger electric pickup trucks (and a future fuel-cell version), production that will help GM achieve economies of scale.
  • GM keeps 80% of the regulatory emissions credits from sales of the Badger and can bid on the sale of the remaining credits — helpful in offsetting GM's continued sales of gasoline-powered trucks and SUVs.
  • GM will also supply the fuel cell systems to Nikola's future big semi-trucks.

Between the lines: By agreeing to provide batteries and fuel-cell technology for future Nikola vehicles and build the Badger pickup truck at a GM factory, GM gets to share the cost of technologies it was already developing. (The same is true of its partnership with Honda.)

GM CEO Mary Barra said the automaker is standing by Nikola, despite the controversy.

  • "The company has worked with a lot of different partners and we’re a very capable team that has done the appropriate diligence," Barra said during a conference with RBC Capital Markets on Monday, according to CNBC.

What to watch: The Justice Department has reportedly joined U.S. securities regulators in examining allegations that Nikola misled investors about its own technology capabilities, per the Wall Street Journal.

  • As for GM and Barra, the risk is minimal.
  • "The way the deal’s structured, she's got nothing to lose and everything to gain," said Guidehouse Insights analyst Sam Abuelsamid.

The bottom line: If Nikola goes up in smoke, GM's 11% stake could be worthless, it's true. But all it would mean is a momentary black eye for GM.

  • And if it works out, GM gets to accelerate the race to the future.

Go deeper: Electric vehicle startup Nikola reportedly facing 2 federal inquiries

Go deeper

Ben Geman, author of Generate
Nov 22, 2019 - Technology

Tesla ushers in the electric pickup moment

Photo: Tesla

Tesla unveiled its futuristic "Cybertruck" at an L.A. event on Thursday that was heavy on light shows, yet analysts remain in the dark about the future of electric pickups — and Tesla's role in it.

Why it matters: The event was the splashiest sign yesterday that automakers are moving closer to bringing electric models to the huge pickup market.

Biden headed to the Hill as Democrats struggle to reach deal on spending bills

President Biden and House Speaker Nancy Pelosi leave a House Democratic Caucus meeting in the U.S. Capitol on Friday, Oct. 1, 2021 in Washington, DC. Photo: Kent Nishimura / Los Angeles Times via Getty Images

President Biden on Thursday morning will meet with the House Democratic Caucus on Capitol Hill to provide an update about his Build Back Better agenda and the bipartisan infrastructure deal, according to a White House official.

Driving the news: The meeting comes as Democrats struggle to reach a deal on the spending bills. House Speaker Nancy Pelosi told CNN on Sunday that Democrats were planning to reach an agreement on the infrastructure package this week, before Biden's departure to Europe, which is slated for later on Thursday.

Felix Salmon, author of Capital
47 mins ago - Economy & Business

Why it's so hard to tax wealth

Illustration: Sarah Grillo/Axios

The wealth tax that wasn't a wealth tax isn't even a tax, now. The Democrats had a meticulously constructed 107-page proposal to pay for a large chunk of their spending plans with a tax on billionaires, but it died ignobly on Wednesday, the same day it was unveiled.

Why it matters: The dream of a wealth tax will never die as it so neatly generates revenue by reducing inequality. But there are three main reasons why that dream is likely to remain just a dream for the foreseeable future.

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