Lordstown Motors (NASDAQ:RIDE) recently completed its reverse merger with special purpose acquisition company DiamondPeak Holding. The company is now set to take the competitive electric vehicle (EV) market by storm with its flagship pickup truck called the Endurance. Founder and CEO Steve Burns feels that the company is “going to beat everyone to market.” He feels it has the edge over its competition, focusing on purpose-built work trucks in targeting fleets only. However, with it still in the prototype stage and a commercial release still two or three years away, it’s tough to get optimistic about RIDE stock.
Lordstown hopes to begin production next summer and hopefully break-even by 2022. Such a timeline seems aggressive and unrealistic due to competition and the internal and external risks. Hence, to prove its naysayers wrong, the company must deliver results fast.
A few things set it apart from its competition, but they are several risks as well. All in all, though, it’s a tad too early to be investing your money in a speculative investment such as RIDE stock.
The Bull Case
Burns insists that Lordstown has something unique to offer its customers. Its flagship electric pickup truck called Endurance could potentially become the creme de la crème of the industry. The truck comes with an impressive 7500-pound towing capacity, a 250-mile range, and a reasonable price tag of $52,500.
The company made headlines recently when it showcased the Endurance at the White House with President Donald Trump. Management states the company has a backlog of orders worth $1.4 billion.
A core differentiating factor for Lordstown is that it owns its auto plant. Its competitors, such as Nikola (NASDAQ:NKLA) and Fisker (NYSE:FSR), lack the infrastructure to manufacture its vehicles. Lordstown has a 6.2 million square foot assembly plant from General Motors (NYSE:GM), with a $3 billion replacement value.
Additionally, it has several strategic investors, including automotive giants such as GM and institutional investors Fidelity and BlackRock (NYSE:BLK). Another positive is its current stock price. Lordstown Motors has a market capitalization of approximately $2.76 billion and is trading at less than $20.
The Bear Case
Unfortunately for Lordstown, the bear scenario for RIDE stock seems more compelling at this time. Perhaps the most obvious concern with the company is its ability to scale production. The Endurance hasn’t entered production yet, but the company has already laid down a break-even timeline. Seems a bit imprudent at this stage.
Lordstown might have to beef up its production capabilities if its partner Workhorse (NASDAQ:WKHS) wins a portion of the $6.3 billion USPS contract. Hence, the company could potentially end up borrowing significant sums of money in continuing to ramp up production. An Ann Arbor-based company recently sued it for $2.5 million for non-payment of dues. Therefore, the cracks seem to have started to surface already.
Moreover, you have to also factor in the intense competition in the EV space. Governments are likely to get involved in funding several new startups in hopes of transitioning to a greener economy. As cities begin to limit carbon emissions and other stakeholders continue to push the clean energy agenda, expect the EV market to become saturated soon.
Furthermore, having a manufacturing facility is an advantage but whether it’s cost-effective is a different story. EV startups, such as Fisker, are outsourcing manufacturing and focusing on design and software. Perhaps Lordstown could take cues from Fisker and employ an asset-light approach.
Bottom Line on RIDE Stock
Lordstown Motors is a fascinating play in the EV market but has a lot to prove to pique investors’ interest.
The company has an impressive production facility, a healthy backlog of orders and its stock is trading cheaply. However, production is yet to begin, and the intense competition might weigh down its progress immensely.
On top of that, its asset-heavy model might prove to be expensive in the longer run. Therefore, it’s best to avoid RIDE stock at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.