Nikola stock surges 40% on General Motors partnership news

September 8, 2020, 3:36 PM UTC

Stock in electric and fuel-cell vehicle startup Nikola exploded by nearly 40% Tuesday morning on news that it would partner with General Motors to design and manufacture the startup’s Badger electric pickup truck and use GM battery and fuel-cell technology in other vehicles. In exchange for its tech and engineering, GM will receive $2 billion in newly issued Nikola common stock, giving the legacy automaker an 11% stake in the startup.

GM shares also gained more than 6% in early trading. Meanwhile shares in Tesla dropped by as much as 17%. That dip, however, appears mostly the result of Tesla’s not being added to the S&P 500, rather than the GM-Nikola deal.

Analysts have expressed some caution about the Nikola Badger, for which the company began taking preorders before announcing its manufacturer. The announcement of GM as that manufacturing partner is, on the face of it, a massive coup for the startup. GM manufactures the GMC and Chevrolet line of pickups, which together have a 35% share of the lucrative U.S. pickup market, just behind Ford. GM’s role in making the Badger, then, will almost certainly help bolster buyers’ faith in the truck’s build quality.

“Nikola is one of the most innovative companies in the world. General Motors is one of the top engineering and manufacturing companies in the world,” Nikola founder Trevor Milton said in a statement. “You couldn’t dream of a better partnership than this.”

In addition to partnering to manufacture the Badger, General Motors will be the exclusive supplier of hydrogen fuel-cell technology for Nikola’s planned line of commercial freight trucks, with the exception of Europe. GM will also provide battery system technology to Nikola.

Markets clearly see the deal as a win for both companies. The association with GM gives Nikola a much-needed credibility boost—the startup has battled skeptics of its technology and business model, particularly since its stock was publicly listed earlier this year.

GM, meanwhile, has an uneven history in the EV market: It notoriously killed off a trailblazing electric car, the EV1, in the late 1990s. But more recently its Chevy Bolt became a mass-market game changer, and GM has announced a slate of 20 new EV models arriving by 2023. Partnering with Nikola bolsters that expansion strategy. In particular, GM CEO Mary Barra noted that the deal will expand the scale of GM’s battery production, a key element of reducing EV battery unit costs.

At the same time, however, the announcement could accentuate some investors’ concern that Nikola controls relatively little of the technology, manufacturing, and engineering behind its vehicles. This could limit the company’s profitability. GM, for instance, will receive ongoing payments for manufacturing the Badger, on top of the equity it is receiving. It is also unclear how the use of GM’s battery technology will impact Nikola’s declared plan to develop its own battery.

Production of the Badger truck is expected to start in late 2022.

More must-read tech coverage from Fortune: