General Motors Acquire 11% Stake in Nikola; Buy with Target Price of $46

General Motors, an American multinational corporation that was the world’s largest motor-vehicle manufacturer in the 20th century, said it would acquire 11% stake in U.S. electric trucking startup Nikola for $2 billion, sending both shares higher in pre-market trading on Tuesday.

The auto manufacturer will also receive the right to nominate one director. General Motors seizes growth opportunity with Nikola to boldly move into broader markets with Hydrotec fuel cell and Ultium battery systems, the company said in the statement.

Following this release, General Motors’ shares rose about 6% to $31.66 in pre-market trading on Tuesday, but the stock is down about 17% so far this year.

In addition, Nikola shares climbed over 30% to $45.68 in pre-market trading. Also, the stock is up over 240% so far this year.

Executives’ comments

“By joining together, we get access to their validated parts for all of our programs, General Motors’ Ultium battery technology and a multi-billion dollar fuel cell program ready for production. Nikola immediately gets decades of supplier and manufacturing knowledge, validated and tested production-ready EV propulsion, world-class engineering and investor confidence,” said Nikola Founder and Executive Chairman Trevor Milton.

“Most importantly, General Motors has a vested interest to see Nikola succeed. We made three promises to our stakeholders and have now fulfilled two out of three promises ahead of schedule. What an exciting announcement,” Milton added.

“We are growing our presence in multiple high-volume EV segments while building scale to lower battery and fuel cell costs and increase profitability. In addition, applying General Motors’ electrified technology solutions to the heavy-duty class of commercial vehicles is another important step in fulfilling our vision of a zero-emissions future,” said General Motors Chairman and CEO Mary Barra.

General Motors stock forecast

Fourteen analysts forecast the average price in 12 months at $33.46 with a high forecast of $46.00 and a low forecast of $15.00. The average price target represents an 11.53% increase from the last price of $30.00. From those 14 analysts, ten rated “Buy”, three rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $46 with a high of $68 under a bull-case scenario and $15 under the worst-case scenario. General Motors stock price forecast was raised by Citigroup to $54 from $53.

Other equity analysts also recently updated their stock outlook. General Motors had its price objective upped by Deutsche Bank to $33 from $30. Deutsche Bank currently has a buy rating on the auto manufacturer’s stock. UBS Group raised their price target to $34 from $27.00 and gave the company a buy rating.

Analyst views

“We are Overweight (OW) based on its strong portfolio diversification across: General Motors (GM) brands, as well as EVs, ICE and AVs. It also has leading North American margins, generates strong cash flow, and has a strong balance sheet,” said Adam Jonas, equity analyst at Morgan Stanley.

“We believe the market is underestimating the SOTP of the GM enterprise via: 1) Legacy ICE, 2) GM EV, 3) GM’s Ultium Battery business, 4) China JVs, 5) GM Finco, 6) GM Cruise, and 7) hidden franchise value in brands such as Corvette. GM management have a proven track record to allocate capital away from structurally challenged areas towards re-positioning the business model,” he added.

Upside and Downside risks

Upside: 1) Ramp of HD Truck and Full-Size SUV Platform. 2) Strategic Optionality, similar to exit of Europe. 3) Liquidity / Cash Management. 4) Spin-off of EV Business or GM Cruise – highlighted Morgan Stanley.

Downside: 1) Used Vehicle Prices. 2) China Profitability. 3) SAAR remains depressed. 4) GM Financial Losses.

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