Electric vehicle stocks are a tour de force on Wall Street these days. The situation reminds me of the dot-com bubble during the bull market days of the late 1990s. However, the rapid rally in electric vehicle stocks is showing signs of slowing down. And Ohio-based Lordstown Motors’ (NASDAQ:RIDE) stock is suffering a similar fate.
Shares of the electric vehicle start-up fell sharply after the U.S. Postal Service postponed the date for awarding a $6.3 billion contract to build its new mail trucks to next year due to challenges posed by the novel coronavirus pandemic. Workhorse (NASDAQ:WKHS) is one of the finalists for the contract, a company that has a 10% stake in Lordstown, which was spun off as its own independent company from Workhorse in 2019.
On the other hand, it’s not all doom and gloom for RIDE stock. Shares shot up as much as 27% after the company said it had received about 50,000 nonbinding production reservations for its all-electric Endurance pickup. Deliveries are slated to begin in September 2021. Full production will ramp up throughout 2022.
RIDE stock has a one-month return of 12.92% while the S&P 500 has finished with 2.71%. However, a revenue estimate of $107.27 million next year hardly justifies a market valuation of $3.23 billion.
External Catalysts
There are several stocks in the EVs, hybrids, and NEVs (neighborhood electric vehicles) space that are rising purely based on speculation and the euphoria surrounding Tesla (NASDAQ:TSLA) and Chinese automobile manufacturer Nio (NYSE:NIO). Renewables are the next big trend that the markets want to capitalize on.
Plus, governments worldwide are adopting initiatives to dramatically reduce U.S. greenhouse gas emissions and quickly shift to a less carbon-intensive future. In the U.S., the concept had become a rallying cry in Democratic Party politics. The Green New Deal is a big part of policy debates partly due to the rapid ascent of New York Rep. Alexandria Ocasio-Cortez and the damage caused by climate change.
Although the Democratic Party and the Republican Party have different ideas regarding how to tackle climate change, it’s fast becoming a bipartisan issue. Hence, one can think of this as a secular trend. It will continue regardless of who sits in the White House.
However, with the Democrats in power, you will see a substantial uptick in green stocks. President-elect Joe Biden unveiled a $2 trillion proposal to combat climate change, setting a 100% clean-electricity standard by 2035 and stopping all climate-damaging emissions. Despite this, there are still calls from within the party to do more.
Also, Tesla is making a lot of waves. It’s such a ubiquitous company at the moment that no entity operating in the space can avoid its impact. This year has been an excellent one for Elon Musk’s billion-dollar baby. Deliveries are shattering records with every passing month. Meanwhile, it’s expanding into new markets and has deep pockets to keep on innovating.
Production on Track for Next Year
Throughout this article, we’ve talked a lot about the external factors that can boost RIDE stock. From the general state of the EV space to the political factors helping the bull case, little of this has to do with the company itself. However, there are several positive developments that are driving the stock upward.
Early reservations for its all-electric Endurance pickup are strong, and it plans to double hiring by the end of this year. It received approximately 50,000 nonbinding production reservations for the vehicle, tailored for commercial buyers rather than individual owners.
Lordstown aims to double the head count to 500 by the year-end, followed by 1,500 people by the end of 2021. Although it’s not gargantuan news, it’s still positive.
When the Postal Service contract got delayed, shares naturally felt the hammer. Workhorse remains in a prime position to win the contract outright or partly. Workhorse is not vertically integrated, like its competitors. Not to mention, it still needs to work on generating capacity for such a large order. For that, Lordstown will prove effective.
But it’s a double-edged sword. If Lordstown has to set aside a sizeable chunk of its facilities to replace the U.S. Postal Service’s aging and troubled fleet, it will have trouble maintaining its production schedule for the 2021 Endurance trucks.
RIDE Stock Is Not Impressive Enough for a Buy Verdict
Management expects to begin sales in September 2021 with its Endurance pickup truck, making it the first company with a full-sized EV pickup truck targeting fleet customers. The company has a bold target of achieving EBITDA profitability by 2022 and selling over 100,000 units of Endurance in 2024.
However, with zero revenue and units sold at this point, a market cap of $3.23 billion is far-fetched. Along with the other major players in the EV space, shares of the company could appreciate due to Tesla-led enthusiasm. Notwithstanding, it has nothing to do with the company and its fundamentals.
Goldman Sachs initiated coverage of the electric-vehicle maker with a buy rating and a $31 price target. In giving the rating, Mark Delaney and other analysts said in an investors’ note that electric vehicles’ significant adoption, especially in the U.S. and Western Europe, will be a major catalyst.
Again, there was little spoken on production capacity and future profitability. That should give you a fair indication of the major catalyst for the stock: the swift shift towards renewables the world over. And that’s the principal reason why I maintain a “neutral” rating on RIDE stock.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
