Wall Street analysts react to Nikola's 'game changing' deal with GM

Published Tue, Sep 8 20201:22 PM EDTUpdated Tue, Sep 8 20204:14 PM EDT

(This story is for CNBC PRO subscribers only.) Nikola shares surged more than 40% on Tuesday after the company announced a partnership with GM , which Wall Street analysts said validates the electric vehicle company's longer-term business model. "We believe this partnership serves as validation that BEVs [battery electric vehicles] and FCEVs [fuel cell electric vehicles] remain well positioned in the dynamic auto industry," said Cowen's Jeffrey Osborne. "The partnership represents a high volume commercialization of GM's Hydrotec fuel cells, which we believe is a positive leading indicator of continued adoption of fuel cell technology within heavy-duty transportation," he added. Cowen has an outperform rating on the stock and $79 target, which is 122% above Friday's closing price of $35.55. GM took a $2 billion, or 11%, stake in Nikola, and will produce the company's hydrogen fuel cell pickup truck, which is called the Badger. Production on the consumer vehicle is expected to begin by the end of 2022. Wedbush's Dan Ives called the partnership potentially "game changing." "This news is a huge shot in the arm for Nikola and cements credibility not just for its Badger production ... but for its hydrogen fuel cell ambitions and semi truck vision going forward," he said in a note to clients following the announcement. "There have been many skeptics around Nikola and its founder Trevor Milton's ambitions over the coming years, which now get thrown out the window with stalwart GM making a major strategic bet on Nikola for the next decade on the EV and fuel cell front." Wedbush has a neutral rating and $35 target on the stock. GM shares also moved higher, gaining about 9%, amid investor enthusiasm for the partnership's impact on the legacy auto maker's electric vehicle division. "If anything is keeping investors interested in General Motors (GM) these days, it's the thought that CEO Mary Barra might do something exotic with the company's electric vehicle business," noted Gordon Haskett's Don Bilson. Nikola has attracted a lot of investor enthusiasm since going public on June 4 through a reverse merger with special purpose acquisition company VectoIQ. Still, the company has yet to prove that it can execute on its electric vehicle vision. Deutsche Bank called Tuesday's announcement the second large "external validation" for the company, following Nikola's announcement in August that it would provide 2,500 battery-electric waste trucks for Republic Services. But Deutsche Bank also removed its catalyst call buy rating on Tuesday, saying "the main positive catalyst we were looking for has now been announced." - CNBC's Michael Bloom contributed reporting.

Nikola Motor Company Badger pickup truck

Source: Nikola Motor Company

(This story is for CNBC PRO subscribers only.)

Nikola shares surged more than 40% on Tuesday after the company announced a partnership with GM, which Wall Street analysts said validates the electric vehicle company's longer-term business model.