It’s been a bumpy ride for Lordstown Motors (NASDAQ:RIDE) since the electric-truck maker went public on Oct. 26 of this year. And the rough stretch of road looks likely to continue.
Lordstown went public via a special purpose acquisition corporation (SPAC), which are all the rage on Wall Street this year. In the case of Lordstown, SPAC company DiamondPeak Holdings took Lordstown Motors public.
DiamondPeak Holdings’ stock ran up sharply ahead of the IPO, rising more than 50% in September. However, since the IPO that created Lordstown Motors, RIDE stock fell nearly 60% to a low of $13.05 before rebounding to yesterday’s closing price of $19.20 per share. The company now has a market cap of about $3.2 billion. Where the stock goes from here remains to be seen. The only sure thing is that the shares are likely to remain volatile going forward.
A Speculative Start-Up
Lordstown Motors, based in Lordstown, Ohio, is, at this point, a speculative investment. Like many companies in the overcrowded electric-vehicle sector, Lordstown Motors has yet to manufacture a single vehicle.
Lordstown Motors does have a manufacturing facility in place and claims to have more than 50,000 pre-orders for its Endurance truck, but the vehicle remains in the planning stages of development.
The company has said deliveries of the Endurance are expected to begin in September 2021, with full production ramping up throughout 2022. And Lordstown is also planning to double its headcount to 500 by the end of this year, before hiring 1,500 more people by the end of 2021.
Yet despite its efforts, Lordstown Motors remains a risky play. Citing the speculative nature of the company and RIDE stock, CNBC commentator Jim Cramer has disparaged the company and urged investors to trim their holdings of it. The comments hurt Lordstown’s share price.
The bottom line is that Lordstown Motors is a small start-up that is not yet at the manufacturing stage and remains unprofitable. The most optimistic analysts forecast that the company’s sales will only be about $115 million in 2021, and that is if everything goes according to plan as Lordstown ramps up production. Investors who take a position in the stock at this stage are placing a long-term bet on the company’s future.
An Overheated Market
So many electric-vehicle companies are going public these days that it’s hard to keep track of them all. Hyliion Holdings (NYSE:HYLN), Workhorse Group (NASDAQ:WKHS), Fisker (NYSE:FSR), Li Auto (NASDAQ:LI) … the list goes on. Yet with the exception of Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO), few if any of the companies are actually manufacturing any vehicles and generating revenue. For this reason, the electric-vehicle market is drawing comparisons to the dot.com bubble of the late 1990s and early 2000s that burst in spectacular fashion, wiping out $1.7 trillion of investors’ wealth in the process.
While today’s electric-vehicle sector isn’t as large as the technology market was back in the year 2000, the investor mania surrounding RIDE stock and the shares of other electric-vehicle companies is reminiscent of the frenzy that has preceded past bubbles right before they burst.
Investors seem so desperate to gain exposure to the electric-vehicle market that they are willing to throw money at any start-up listed on a stock market. What’s needed now is some perspective. Investors would be well-advised to perform some due diligence on Lordstown Motors and other electric-vehicle companies before buying their shares.
Keep RIDE Stock on Your Watchlist
At this point in its evolution, Lordstown Motors belongs on investors’ watchlists. RIDE stock is too volatile, and it is too early in the company’s development to justify taking a position and buying a lot of its shares.
By all means, keep an eye on the company and its stock. But there are more established, less risky electric-vehicle makers such as Tesla and Nio that investors can put their money into.
Investors should give Lordstown Motors some time to grow and develop, while retaining a healthy dose of skepticism about the company and the electric-vehicle market.
On the date of publication, Joel Baglole held long positions in TSLA and NIO.
