General Motors (GM), one of the most renowned automotive manufacturers, entered into a strategic partnership with Nikola, a new energy carmaker with a focus on electric and hydrogen fuel cell vehicles.

However, shortly after this partnership was announced, Nikola’s stock faced a significant decline due to allegations of fraud, raising concerns about the future of the deal and its impact on GM’s investment.

Background on the GM-Nikola Deal

The partnership between GM and Nikola was announced with significant fanfare, highlighting the potential for collaboration in the development of electric vehicles. As part of the deal, GM was to receive 47.7 million shares in Nikola, valued at $41.93 each, totaling slightly over $2 billion. This deal was expected to benefit both parties: GM would leverage its manufacturing expertise, while Nikola would gain credibility and access to resources.

However, the value of this stake quickly deteriorated as allegations of fraud against Nikola surfaced. The share price plummeted, closing at $33.28, resulting in paper losses for GM of over $400 million. This dramatic drop not only impacted GM’s investment but also raised questions about the partnership’s future and the broader implications for the automotive industry.

General Motors

Fraud Allegations and Their Impact on Nikola

The significant decline in Nikola’s stock price was primarily triggered by fraud allegations from Hindenburg Research, a notable short-selling firm. Hindenburg’s investigation revealed a series of deceptive practices and false claims that it attributed to Nikola’s founder and chairman, Trevor Milton. According to Hindenburg, Milton had constructed a web of lies to create a facade of a successful new energy company.

One of the most damning pieces of evidence cited by Hindenburg was a 2018 promotional video showing a Nikola semi-truck appearing to move under its own power. However, the report claimed that the truck was not self-propelling but was simply rolling downhill. Other allegations included exaggerated claims about the company’s technology and misleading statements to investors about Nikola’s progress.

Nikola’s response to these allegations was mixed. While the company admitted that it should have clarified the truck’s method of movement in the video, it denied the broader accusations of fraud. Nikola argued that Hindenburg’s report was misleading and aimed at manipulating the stock market. Despite these denials, the allegations had already caused significant damage to the company’s reputation and stock price.

Regulatory Investigations and Increased Short Interest

The Hindenburg report and the subsequent stock price drop drew the attention of federal authorities. The U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) began investigating Nikola’s business practices to determine if the company had indeed misled investors or engaged in fraudulent activities. These investigations added to the uncertainty surrounding the company and its partnership with GM.

The level of short interest in Nikola’s stock also increased substantially, reaching 8.05% of the share float by mid-September. This high level of short interest indicated that many investors were betting on Nikola’s stock price falling further, reflecting a lack of confidence in the company’s future. The combination of ongoing investigations and increased short interest created a challenging environment for Nikola and raised questions about the sustainability of the GM-Nikola partnership.

Reputational Risk for General Motors

General Motors’ partnership with Nikola came with potential reputational risks, especially as allegations of fraud against Nikola became public. The ongoing investigations by the U.S. Department of Justice and the U.S. Securities and Exchange Commission into Nikola’s business practices placed GM in a precarious position. A key concern for GM was the association with a company facing serious accusations, which could reflect poorly on its own brand image and stakeholder trust.

Even if the financial risk for GM was initially low due to the cashless nature of the deal, the reputational damage could have longer-lasting effects. The possibility of GM being linked to a company accused of fraud or facing legal trouble could harm customer confidence, investor relations, and partnerships with other companies.

GM Headquarters

Possible Outcomes and GM’s Options

Given the unfolding events and investigations, GM had to consider its options in response to the developments. One of the potential outcomes was for GM to distance itself from Nikola or even pull out of the deal altogether, which might be the safest course of action if the allegations were proven true or if Nikola’s business model collapsed. Alternatively, GM could proceed with caution, waiting for the outcome of the investigations and monitoring the public perception of the partnership.

GM CEO Mary Barra stated that the company conducted “appropriate diligence” before entering the deal with Nikola, suggesting that GM believed in the potential of the partnership. However, the ongoing scrutiny and negative press surrounding Nikola could lead GM to reassess its involvement, especially if the risk to its reputation outweighed the benefits of the strategic manufacturing partnership.


The partnership between General Motors and Nikola, which began with high expectations, quickly turned tumultuous due to fraud allegations and subsequent regulatory investigations. GM faced a significant reputational risk as a result of these developments, and the dramatic drop in Nikola’s stock price highlighted the potential financial losses for the automotive giant.

As the investigations progressed, GM had to evaluate its next steps, weighing the benefits of the partnership against the potential risks. The broader implications for the automotive industry were significant, as this case illustrated the importance of thorough due diligence and the impact that misleading information could have on investor trust.

In the end, the future of the GM-Nikola partnership remained uncertain, with multiple possible outcomes. The unfolding events would likely influence how other companies approach similar deals in the new energy and electric vehicle sectors, emphasizing the need for transparency and ethical business practices.

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Fintecology Editorial Team

The Fintecology Editorial Team is comprised of a diverse group of business-minded, tech enthusiasts and experts, dedicated to bringing you the most accurate, insightful, and up-to-date information. With a collective passion for technology and innovation, our team ensures each article meets rigorous standards of quality and relevance. We strive to demystify complex technological and business concepts, making them accessible to everyone, from curious beginners to seasoned professionals.

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