Based on a cursory examination of the immediate fundamental factors surrounding Lordstown Motors (NASDAQ:RIDE), the electric-vehicle (EV) maker should be a convincing buy. Certainly, when you consider the huge gains enjoyed by early-bird investors, it appears that way. After all, RIDE stock isn’t a direct competitor to Tesla (NASDAQ:TSLA). Instead, Lordstown targets a niche market — electric pickup trucks for commercial use.
Further, niche in this case doesn’t mean a boutique arts-and-crafts store that will only enjoy demand from a limited consumer base. While the traditional combustion platform dominates commercial applications due to its high energy density, brewing societal change is difficult to ignore. For example, many experts have blamed climate change for facilitating the record wildfires we’ve seen this year.
Put another way, it’s becoming politically unpalatable for many policymakers to simply stick their heads in the sand. Naturally, the search for viable alternatives that will maintain our robust economic infrastructure greatly benefits RIDE stock.
That’s because while EVs offer far cleaner holistic emissions than their combustion counterparts, they haven’t been the most practical for industrial and commercial applications. Commercial fleets require range and capacity, and until we have a radical new advancement in battery technology — such as solid-state batteries — the solution has meant big, bulky and expensive lithium-ion batteries.
To get around this problem, Lordstown has introduced a four-in-wheel-hub motor system for its flagship Endurance pickup truck, which should dramatically improve efficiency (among other attributes) while saving considerable space. This provides greater practicality for fleet owners, while giving Lordstown engineers the ability to design pickups that are in line with desirable chassis trends.
Again, on the surface, RIDE stock should be a no-brainer for investors. Yet shares have been all over the map. The question is: Why?
RIDE Stock Is Getting Ahead of the Fundamentals
When RIDE stock skyrocketed from August through most of September, it wasn’t a terribly shocking occurrence. Yes, Lordstown is running with basically an experimental system regarding the in-wheel hub motors. There is a reason why this setup hasn’t caught on in the past. But ultimately, the flagship Endurance is practicality wrapped in an environmentally friendly package. What’s not to love?
But then, after the midway point of September and through early November, RIDE stock plummeted worryingly. Technically, this shock to the system brought up fears that perhaps the EV market was in a bubble; seemingly everybody was introducing an electric vehicle to address a niche market.
Just as quickly as those fears set in, they gave way to tremendous enthusiasm. Now President-elect Joe Biden won the 2020 election, and his promise to build back better (and cleanly) was the catalyst that RIDE stock needed to reestablish credibility. But again, since late November, shares have succumbed to a decidedly bearish trend channel.
Is Lordstown condemned to indefinite cycles of see-sawing? Researching this issue, I’ve come to the conclusion that it depends on the health of the construction industry.
Here’s the deal. According to RIDE stock price information compiled by Yahoo Finance, Lordstown shares averaged $10.24 in July. In August and September, RIDE increased dramatically to an average of $16.78 and $25.75 respectively.
However, using data from the U.S. Census Bureau, total commercial construction spending in the U.S. declined from $84 billion in July to $82.7 billion in September. In other words, sentiment for RIDE was rising while the commercial construction industry was tightening its belt.
Now, there was some semblance of normalcy in October, when both RIDE stock and commercial construction spend dropped. However, the following month, RIDE bounced higher. Unfortunately, we don’t have access yet to the construction spend in November. But if it’s flat to worse, you’ve got to figure that Lordstown presently may be overvalued.
An Unemployment Warning Sign?
Due to psychological trading phenomena, I wouldn’t be surprised if RIDE stock dropped down to its support level between $17 to $18, only to bounce higher once more. Plus, we’re talking about the broader EV market, which is highly emotional.
But what about the intermediate to longer-term outlook? As I mentioned, we’re going to need to see commercial construction spending data to get a better understanding about where Lordstown shares are heading. However, we may get a preview with unemployment data.
Back in April of this year, the unemployment rate for the construction sector (16.6%) significantly exceeded that of the national rate (14.7%). In November, both rates have declined substantially. Still, construction remains noticeably higher than the national joblessness rate, 7.3% versus 6.7%.
To me, this suggests that the construction industry overall is still tightening its belt relative to other labor markets. Until this trend ameliorates, it’s not helpful for Lordstown, as fleet owners probably aren’t looking to upgrade but rather, do their best to maintain what they already have.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.