Volatility is back. The markets have plunged for three consecutive sessions as the extended sunshine rally appears to have reached an impasse. However, for investors of one of 2020’s outperforming newcomers, the short week began with a forward surge.
Shares of EV truck maker Nikola (NKLA) hit the ground running today, blasting off to the tune of 42%, after the company announced it had inked a new deal with auto giant General Motors.
Sending shock waves across the Street, the terms of the agreement dictate GM will receive an 11% stake in Nikola and the right to nominate a Director to the Board. In return, Nikola will get its hands on GM’s battery and fuel cell technology and infrastructure, which will go toward producing the Badger – Nikola’s light-duty truck - and the company’s other semi-truck models.
Wedbush analyst Daniel Ives calls the deal a “huge shot in the arm for Nikola,” believing the relationship will provide the company with much needed credibility. The lack of so far has centered around founder Trevor Milton’s brash personality and whether Nikola can deliver on what is currently not much more than a lot of hype. Ives believes the “potential game changing deal” could go a long way to altering Wall Street’s perception of the auto industry upstart.
“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,” the 5-star analyst said. “For GM given its strategic goal around EV battery technology for the coming years and its massive $20 billion of investments earmarked for electric and autonomous vehicles by 2025, we view this as a smart strategic bet at the right time. For Nikola, while this still remains an execution story over the coming years in the eyes of the Street, the GM news is a paradigm changer for the company around its future EV and fuel cell ambitions.”
Nevertheless, despite the “huge step forward,” Ives sticks to his Neutral rating and $45 price target. Following Tuesday’s run up, the figure represents possible downside of 11%. (To watch Ives' track record, click here)
So, that’s the Wedbush view. Turning now to the rest of the Street, where Nikola has a Moderate Buy consensus rating, based on 2 Buys and 3 Holds. Going by the $53.75 average price target, the analysts expect shares to appreciate by nearly 7% from current levels. (See NKLA stock analysis on TipRanks)
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