Nikola's 25% dive is a good buying opportunity because the company's decision to abandon the Badger pickup means it can focus more on semi trucks, JPMorgan says

• The 25% sell-off in Nikola on Monday represents a good buying opportunity for investors as the company is no longer distracted by its Badger pickup truck, JPMorgan said.
• Nikola and General Motors entered into a revised deal on Monday that included the two companies shifting its focus away from the Badger truck and instead towards the Class 7 and Class 8 semi-trucks.
• "We think this is a positive outcome for NKLA over the medium to longer term, since the company can now focus on the core Class 8 truck initiative," JPMorgan said.
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Nikola's revised deal with General Motors represents a bullish development for investors over the medium to longer term, according to a Monday note from JPMorgan.

The bank, which retains a $40 price target on the beleaguered trucking start-up, said that investors should view any pullback in shares of Nikola as a good buying opportunity.

Investors are now staring down that opportunity after shares of Nikola declined by as much as 25% on Monday following the announcement of the long-awaited deal with General Motors.

As part of their agreement, General Motors will no longer acquire a $2 billion equity stake in Nikola, nor will it partner with the company as an OEM manufacturer to produce its much hyped Badger pickup truck.

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Instead, Nikola and General Motors will shift their focus to developing Nikola's Class 7 and Class 8 semi-trucks powered by fuel cells.

The deal "looks like a conventional arms-length cost-plus supply contract for [General Motors'] Hydrotec system," JPMorgan said, adding that it can eventually include the Ultium battery system from General Motors as well.

Nikola is now "on the hook" for capital costs to ramp up the production of the Hydrotec, while General Motors is likely committing to research and development costs, according to the note.

"We think this is a positive outcome for Nikola over the medium to longer term, since the company can now focus on the core Class 8 truck initiative and avoid the distraction and capex associated with the Badger pickup," JPMorgan said.

General Motors' more modest commitment to Nikola will likely weigh on investor sentiment in the short term, especially as 161 million shares are due for a lockup expiry this week, meaning that insiders of Nikola that have been paid in equity finally have a chance to sell their shares.

But a pullback in Nikola "could be a good buying opportunity," JPMorgan said.

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