In 2010, electric car maker Tesla announced a joint venture with Toyota in a deal where Tesla acquired a former car plant Toyota had in San Francisco in exchange for giving the Japanese giant a $50 million stake.
The deal came at a time when most investors were skeptical of electric cars, and many would not risk investing in companies like Tesla because the cars were not profitable. For Toyota, the acquisition was seen as an opportunity, as it was handing over a closed plant to a start-up that with its acquisition helped improve its public image in California.
Not a month had passed when Tesla announced it was going public and the share price began to rise rapidly. In March 2016, Toyota’s 2.2 million shares in Tesla were valued at $480 million. By June 2017 Toyota had sold its stake for $538 million. Had it sold in 2021, Toyota could have made just over $1.5 billion.
2020 was an unusual year for Tesla. The company started to become profitable and its share price saw a 695 % resurgence, placing it as the most valuable company in the world, above Amazon. Today Toyota’s value is a third of Tesla’s, most likely the Japanese giant regrets letting go of its stake in that small electric car company.
GM looked for its own Tesla with Nikola
With Tesla’s success and Toyota’s crass mistake, other major traditional automakers are looking for their own electric car start-up in what they hope will be the next Tesla. Among these companies is General Motors (GM) who announced the acquisition of hydrogen-powered electric truck maker Nikola in September.
Nikola has presented itself as Tesla’s counterpart, capitalizing on the name of the famous physicist Nikola Tesla, the company has attracted attention thanks to the fame of its rival. In 2016, Nikola introduced its first product the Nikola 1, a hydrogen-powered truck that its creators dubbed as “the most advanced truck the world has never seen before.”
Shortly after Nikola’s release, Tesla unveiled its own electric truck, the Semi, in a presentation where a euphoric Elon Musk promised that his truck would still be functional after 1 million miles of driving.
Both companies are competing to replace the diesel and electric truck fleet, but the two manufacturers’ approach has been different. While Tesla has focused on 100 percent electric vehicles, Nikola intends to use a hybrid technology of electric and hydrogen-powered vehicles.
For years investors have viewed the hydrogen engine as more efficient and less polluting than the diesel engine. However hydrogen has one major problem, it is extremely expensive and is difficult to refuel, as there are not many hydrogen stations in the United States.
Although Nikola has stated that it has plans to create a network of hydrogen stations, so far, that promise has not been fulfilled. In 2018, brewer Anheuser-Busch placed an order for 800 electric trucks with Nikola to be delivered in 2020, but the order deadline had to be pushed back.
To date, the company has not made its first sale, but in June 2020 it announced its IPO and the high anticipation caused its market valuation to surpass Ford’s briefly.
Despite the euphoria over Nikola’s stock, in August, the company’s financial reports showed that the company had posted losses of more than $86 million and had yet to sell a single truck. A week later, Nikola announced that garbage collection company Republic Services had ordered 2,500 trucks to be delivered by 2023.
In September 2020, Nikola announced a joint venture with General Motors (GM), where GM acquires an 11% stake in Nikola. GM will also supply Nikola with its own hydrogen batteries and engines. The announcement caused the share price to skyrocket, growing by more than 50% in two days.
Shortly after the GM acquisition, a report surfaced accusing Nikola of fraud, claiming that “federal investigators are probing allegations that Nikola, the maker of electric- and hydrogen-powered trucks listed in June, has misrepresented information about its progress in developing key technologies for its new models.” The news caused Nikola’s share price to plummet and its CEO, Trevor Milton, to resign.
Although Nikola denied the allegations, GM was not enough to pull out of the pact with the electric truck maker. In the end, Nikola does not appear to be the new Tesla. Electric cars are still a nascent product whose adoption is still far from replacing diesel. It is possible that rather than the rule, Tesla is the exception. Only time will tell.