How to Play the Nikola/GM Deal

Ed Ponsi

Investors propelled shares of automaker Nikola Corp. (NKLA) to a 40% gain on Tuesday, on word that General Motors (GM) is acquiring a stake in the EV manufacturer. 

The deal gives GM an approximate 11% stake in Nikola. Interestingly, GM didn't pay cash or stock in this deal. Instead, the company has pledged to provide support in the manufacturing and development of Nikola's products. 

GM will provide fuel-cell technology for Nikola's semi trucks, and the two companies will team up to bring Nikola's Badger, an electric pickup truck, to fruition.  

GM
GM chart via TradeStation 

While Nikola is getting all the attention from this deal, GM might be the better buy. The public's perception of GM is that of a dusty old artifact, but the automaker is transforming itself into an EV powerhouse.

GM has just popped out of a bullish cup and handle pattern. That breakout occurred on extremely high volume, making it likely that GM runs higher from here. On Tuesday, the stock traded at a six-month high. 

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Recently, Deutsche Bank (DB) analyst Emmanuel Rosner pointed out that a spinoff of GM's EV unit could be in the works. The Nikola deal accelerates the timeline for such a move, which could unlock further value for GM shareholders. 

Nikola's market cap is $17.2 billion, vs. GM's $45.7 billion. This is a reflection of future expectations. There's currently considerable speculation on stocks like Nikola right now, as Fed-fueled liquidity recently drove the major indices to all-time highs. 

Nikola just broke ground on a 1 million square foot manufacturing facility in Coolidge, Arizona. The company hopes to manufacture 35,000 semi trucks per year at the facility, which might not be ready until 2024.  

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.