In a world where companies can achieve multi-billion dollar valuations before delivering a product, Lordstown Motors (NASDAQ:RIDE) stands out. Right now, RIDE stock has a market capitalization of nearly $4.5 billion.
In fact, since the company’s Aug. 3 announcement that it would come public by merging with special purpose acquisition company (SPAC) Diamond Peak, its value has doubled.
And technically, it has actually doubled twice and been cut in half once, hitting its August price level in early November. But that’s life in “SPAC-world,” where only what people think of your tomorrow matters.
Unlike some other SPACs, however, Lordstown Motors could double again.
RIDE Stock Has Friends in the Right Places
After GM announced the plant’s closure in 2018, though, the company sold it to Lordstown for a nominal price. This included a $40 million loan from GM.
But RIDE stock has more going for it than just the company’s new digs. Maybe most notably, Lordstown has a cheerleader in local Congressman Tim Ryan, who celebrated the SPAC deal last year when a prototype Endurance truck was displayed on the White House lawn. Ryan said:
“I applaud Lordstown Motors in creating an incredible truck and giving our community the opportunity to continue to do what we do best — build world-class vehicles. I will continue to use my position to assist Lordstown Motors in whatever they need to get to the next level.”
Congressman Ryan is currently expected to run for the Ohio U.S. Senate in 2022.
Lordstown Wins November
What has put RIDE stock into overdrive, though, is the November election.
Why? For one, President Joe Biden recently issued an executive order calling for an all-electric federal vehicle fleet. Potentially gaining from that announcement, Lordstown has begun work on an electric van. Ryan is hoping Biden will visit the RIDE plant, too, calling the Mahoning Valley — where the company’s operations are based — the “Voltage Valley.” On top of that, the company is pursuing a $200 million U.S. Energy Department loan to retool its factory.
Lordstown now says it will begin full production of its pick-ups in the fall. Plus, it claims to have over 100,000 orders already lined up.
The company also announced a service deal with Camping World (NYSE:CWH) stores that might make them a channel for retail sales. It also might result in motorhomes being built on the RIDE’s “skateboard” chassis, which it uses for both the Endurance and its van.
No Slam Dunk
All that said, though, RIDE stock isn’t a slam dunk. For one, an earlier version of the Endurance reportedly caught fire during testing. Tesla (NASDAQ:TSLA) is also currently building a truck plant in Texas, which will present some competition.
Then there’s the problem of batteries. Lordstown says it has a contract with LG Chem to produce batteries for the Endurance. But how fast can LG deliver on that contract? And how will Biden’s opponents react when they learn the key to Lordstown’s “American” pick-up is a Korean battery?
The current market cap of $4.5 billion is the equivalent of a little over 85,700 trucks at the Endurance’s $52,500 retail price. If Lordstown were able to clear $5,000 per truck, that’s an enormous valuation. But if the company can get into production, it could be sold on — maybe to General Motors. That’s the bullish thesis.
The Bottom Line
As with all electric truck start-ups, there are no numbers to speak of with Lordstown. You’re betting on hope, which only makes sense when the market is overvaluing returns.
If the market bubble pops, so will the electric car bubble. As such, Lordstown’s valuation could quickly fall toward its fundamentals and GM — or another buyer — could get a bargain.
Keep that in mind before you speculate on RIDE stock. Lordstown has a great story and it’s well along the road to building something. But it’s also living on the market’s hope and the word of politicians.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.