Nikola shares fall after GM scraps Badger deal and drops equity stake

General Motors is giving up its equity stake in Nikola Motors and scrapping plans to build the electric truck maker’s Badger pickup as part of a new, scaled-back deal between the companies.

Nikola shares plunged more than 20% on the news.

The new deal replaces an agreement announced in September in which GM had planned to take an 11% stake in Nikola and supply the startup with equipment for its highly anticipated hydrogen fuel cell trucks. GM had also previously said it would build Nikola’s planned pickup, the Badger.

But shortly after that deal was announced, a short seller released a report leveling allegations of fraud and exaggeration against the company and it’s then-chairman Trevor Milton. Nikola disputed the report.

In the wake of the allegations, GM reminded investors that it had not yet closed the deal with Nikola. The new arrangement, announced Monday morning, is still just a memorandum of understanding, not a final deal. Under this deal, GM will simply be a supplier to Nikola.

Nikola executives have said the Badger pickup would be built only through an arrangement with an outside company. The company has now said it will refund deposits potential customers had placed for the truck.

“Nikola is focusing on its core business of producing commercial zero-emission trucks,” a Nikola spokeswoman said in an email.

The two companies will also discuss Nikola possibly using GM’s Ultium battery system, which will used in GM’s future electric vehicles.

“This went from a game changer deal for Nikola to a good supply partnership but nothing to write home about,” analysts Daniel Ives and Strecker Backe at Wedbush Securities wrote.