Lordstown Motors: Why is This EV Stock Down 70% From Record Highs?
June 15 2021 - 6:54PM
Finscreener.org
Electric vehicle or EV companies were on an
absolute tear in 2020. The stock prices of EV giants such as Tesla
(NASDAQ: TSLA) and
NIO (NYSE:
NIO) crushed the broader market returns due to the accelerated
shift towards clean energy solutions and a rapidly expanding
market. While Tesla shares were up over 700%,
NIO stock soared 1,100% in 2020.
However, the EV space is now heating up and
has attracted multiple players. A new entrant in this market was
Lordstown Motors (NASDAQ: RIDE)
that went public via a SPAC (special purpose acquisition company)
merger. While EV stocks have taken a breather in 2021, Lordstown
Motors stock has grossly underperformed peers as there are
questions raised about the company’s fundamentals as well as
credibility. Let’s take a look to see why the Lordstown Motors
stock is down 70% from record highs.
Hindenburg Research tears into
Lordstown Motors
Lordstown Motors is a pre-revenue company
that aims to sell EV trucks. In January 2021, Lordstown Motors
announced it bagged pre-orders for 100,000 vehicle units that will
help it generate $5 billion in future revenue. However, noted
short-seller Hindenburg Research published a scathing report
accusing Lordstown of misleading investors.
According to Hindenburg Research, Lordstown
has no sellable product and its orders are “largely fictitious”. It
explained Lordstown announced a 14,000-truck deal from E Squared
Energy which will allow the company to generate $735 million in
sales. However, according to Hindenburg, E Squared is a firm that
operates out of a residential apartment in Texas and doesn’t
operate a vehicle fleet.
Further, another 1,000-truck order for $52.5
million came from a two-person startup, and this company’s mailing
address is based out of a UPS store.
The pre-orders were basically part of
marketing relationships and the letters of interest are
non-binding. Additionally, Lordstown initially aimed to begin
vehicle production in September but has been experiencing delays
due to major changes in vehicle designs and management
irregularities.
The need for additional capital and
management resignations
Lordstown Motors released its first quarter
of 2021 results last month and confirmed itU+02019s on track to
begin production in Q4 of 2021. However, it also stated that
production volume will be 50% lower than estimates and the company
is looking to raise capital in order to fund its start-up
plans.
In Q1, Lordstown reported a net loss of $125
million. The management team also said it expects to end 2021 with
liquidity between $50 million and $75 million in cash after
accounting for cost reductions and delayed capital expenditure.
Comparatively, operating expenses in 2021 were forecast to rise by
an additional $115 million compared to previous forecasts.
Lordstown confirmed it will have to raise additional capital and
has begun these discussions with stakeholders.
Last week, in a filing with the SEC,
Lordstown Motors dropped a bombshell as it warned investors about
its precarious cash position. The company ended Q1 with $587
million in cash and an accumulated deficit of $259.7
million.
The filing stated, “Since inception, the
Company has been developing its flagship vehicle, the Endurance, an
electric full-size pickup truck. The Company’s ability to continue
as a going concern is dependent on its ability to complete the
development of its electric vehicles, obtain regulatory approval,
begin commercial scale production and launch the sale of such
vehicles.”
According to Lordstown, the current level of
cash and cash equivalents are not sufficient to fund
commercial-scale production of its vehicles, thereby raising
“substantial doubt” regarding its ability to continue as a going
concern.
On June 14, 2021, the CEO and CFO of
Lordstown Motors stepped down from their positions after the
company’s board of directors concluded that pre-orders were
exaggerated and inaccurate.
Lordstown Motors stock fell close to 19% on
June 14.
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