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Timothy L. O'Brien

How Diligent Was GM About Its Deal With Nikola?

The company’s review of its electric truck partnership has taken a few hits.



Photographer: Ash Ponders/Bloomberg

General Motors Co. is a storied corporation employing many experienced managers, lawyers, accountants, analysts, engineers and, of course, Mary Barra, a gifted chief executive officer.

So how did it come to pass that all those smart people either didn’t foresee or more properly brace themselves for the clown rodeo now swamping its partnership with Nikola Corp.? More to the point, might it have been wiser for GM to have avoided hitching its wagon to Nikola in the first place?

Barra told investors on a conference call last week that GM conducted “appropriate diligence” before entering into a high-profile partnership with Phoenix-based Nikola, a three-year-old publicly traded startup that hopes to mass-produce zero-emission trucks running on hydrogen fuel cells and rechargeable batteries. To my ear, “appropriate diligence” is to “due diligence” as “half-baked” is to “fully cooked,” but maybe I’m nitpicking.

GM declined to offer details about how appropriate its diligence was other than saying it involved a “thorough review of business, legal and technical matters” at Nikola. But Barra was on the call last week because a short seller, Hindenburg Research, had published a report a few days earlier contending that Nikola was “an intricate fraud built on dozens of lies.” Hindenburg’s diligence was clearly different from GM’s.

Wall Street tends to look down on short sellers because they make money when the shares of high-flying companies take a hit, and to that end they often traffic in naysaying, gossip and conspiracy theories (just like lots of other Americans right now). But they’re also cops on the beat and help keep companies honest. Hindenburg raised several issues about Nikola that writers like me find hilarious but that investors, business partners and other outsiders might, understandably, find alarming:

This goes on and on, but you get the picture. And you also didn’t need to wait for Hindenburg to draw that picture for you.