Lordstown Motors Didn’t Have Enough Post-IPO Pop to Instill Confidence

When I last wrote about Lordstown Motors (NASDAQ:RIDE) it hadn’t yet acquired its current ticker. It was then under its DPHC ticker in its pre-merger stages. At that time what would become RIDE stock looked to be priced perfectly, not that it was correctly priced instead, Lordstown had a price attached to it reflecting ideal circumstances. 

Image of a map showing Lordstown's location.
Source: SevenMaps/ShitterStock.com

Markets had basically overvalued it on a mix of SPAC and EV enthusiasm. My thought was that it might get a bump leading into the merger, and then decrease.

RIDE stock became publicly traded at $18.21, dropped down to $13.07 by Nov. 2, and is a little over $25 as I write this. 

I was partially right. It did decline, but I thought it would stay there. Clearly the company has a few positive catalysts befall it recently. I was less than enthusiastic about its hopes then but I do see a bullish case emerging. 

Positive Catalysts for RIDE Stock

There are two recent factors which help to provide a bullish case for Lordstown Motors: pre-orders and politics. First, Lordstown Motors recently announced it had secured 50,000 ‘non-binding’ reservations.

The last time I wrote about it roughly a week prior to its Oct. 23 merger it had secured 40,000 pre-orders. Clearly, investors are going to respond positively to a 25% increase in sales, albeit future, promised sales. And the company also reiterated that it still intends to begin production in Q3 of 2021.

These are exactly the kinds of things that make investors flock to a young stock.

Second, Lordstown Motors is the beneficiary of political tailwinds. Joe Biden has made it clear that he intends to incentivize EVs, and particularly a push to electrify government vehicle fleets. In the press release mentioned above, Lordstown Motors also implied that it will be getting a big bump in orders.

The company stated that the 50,000 pre-orders “figure does not capture the interest the company has received from organizations that are not in position to be able to place pre-orders, such as federal, state and municipal governments, and military fleets.”

Ostensibly, this means that when Biden takes office he will push legislature which clears the way for those organizations to place pre-orders. Lordstown Motors noted that the average fleet order is 500 vehicles. Therefore the company could see that 50,000 pre-order figure jump significantly. 

Can Endurance Really Replace ICE Fleet Vehicles? 

Investors who follow Lordstown Motors know that the company has aligned itself with an underserved vertical in electric fleet vehicles. I think this is a wise strategy and it reminds me to a degree of what Workhorse (NASDAQ:WKHS) is doing in trying to corner the last-mile delivery EV niche. 

And while Lordstown Motors has done admirably in garnering 50,000 pre-orders, I have to question their marketing. Some of their assumptions regarding initial cost comparisons (near page bottom) seem flawed to me. 

Simply put, fleet managers don’t often purchase mid-to-high range trucks. Lordstown Motors compares their $52,000 Endurance against a similarly priced Ford (NYSE:F) F-150. Fleet vehicles are usually lower end, 2wd pickups.

Further, they tend to be discounted in price due to the volume at which they’re ordered. True, the Endurance will receive a $7,500 federal tax credit, and ICE vehicles won’t. But I don’t see the utility company in my city buying $50,000 Ford trucks. 

My point here is that Lordstown Motors’ comparable vehicle is more like a $30,000, entry-level truck, not a $50,000 truck. Sure, fleet managers are going to be very interested in the cost comparison for ICE trucks at the same price as an EV truck. But, it’s unrealistic.

If Lordstown Motors can show a breakeven point between a more realistic (cheaper) fleet truck and its Endurance (marketed as a fleet truck), it would be more persuasive. To suggest that the Endurance is going to cost the same as other fleet vehicles upfront is suspect.

EVs cost more initially, and then cost less over the life of the vehicle. It is as simple as that at this point. 

Verdict on RIDE

At this point I wouldn’t buy RIDE stock. I think it is, at best, a hold. It didn’t pop when it went public, which isn’t a great sign.

I also mention again and again in other articles that SPACs tend to be value destroying in the aggregate. Yet, I don’t feel Lordstown Motors is destined to fail, or lose investors money at this point. I feel it simply has to prove much more.

The company continues to secure pre-orders. Even though they are non-binding it is a positive. And Biden looks to be a big proponent. However, I’m more interested in seeing how this company does next year at this time when production and deliveries begin.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2020/11/lordstown-motors-didnt-have-enough-post-ipo-pop-to-instill-confidence/.

©2020 InvestorPlace Media, LLC