Nikola (NKLA) Gives Up Ground After GM Details Emerge

GM MOU outlines a smaller agreement than investors hoped

Nikola Corporation (NKLA) shares fell sharply during Monday's session after a memorandum of understanding (MOU) with General Motors Company (GM) outlined a much smaller agreement than many investors had hoped without any equity stake.

Key Takeaways

  • Nikola shares moved sharply lower during Monday's session after its GM agreement proved to be much smaller than many investors had hoped.
  • The global supply agreement will provide GM's fuel cell and battery technologies to Nikola's semi-trucks but involves no equity and would likely be cost-plus.
  • Technical indicators provide few hints for the future, but traders should keep an eye on the 50-day moving average and trendline support ahead.

The non-binding MOU is a global supply agreement whereby GM will provide its Hydrotec fuel cell system for Nikola's semi-trucks. The two companies will discuss the appropriate scope of services that GM would provide for the integration of the fuel cell into the vehicles, as well as the potential to supply Ultium battery systems in the future. Any potential arrangement is expected to be cost-plus where Nikola will pay upfront for the capital investment for capacity.

A memorandum of understanding (MOU or MoU) is an agreement between two or more parties outlined in a formal document. It is not legally binding but signals the willingness of the parties to move forward with a contract.

Chart showing the share price performance of Nikola Corporation (NKLA)

From a technical standpoint, Nikola stock broke down from its 200-day moving average at $28.98 toward its 50-day moving average at $22.80 following the news. The relative strength index (RSI) has moderated to neutral levels with a reading of 57.73, but the moving average convergence divergence (MACD) continues to trend higher. These indicators suggest that there's a lot of indecision in the market at the moment.

Traders should watch for support at the 50-day moving average at $22.80 or trendline support at $17.28 over the coming sessions. A rebound could lead the stock to retest its 200-day moving average at $28.98 or trendline resistance at $32.27. If the stock breaks down from trendline support, the stock could fall to fresh lows of $17.28.

The Bottom Line

Nikola shares fell sharply lower during Monday's session after a disappointing MOU with General Motors to supply fuel cell and battery technologies for its semi-truck product. After the 200-day moving average, traders should watch for support near the 50-day moving average or trendline support over the coming sessions.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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