In the last ten months or so, electric vehicle (EV) stocks have had quite a ride. In the second half of 2020 and the first six weeks of 2021, virtually the entire sector rallied tremendously. Then, from mid-February until mid-April, most EV stocks tumbled a great deal. Now, I believe the market is trying to differentiate winning EV names from losing ones. I also continue to think that Lordstown (NASDAQ:RIDE) stock will end up in that latter category.
In fact, in the last several months, multiple events have validated my long-held bearish stance on RIDE stock.
Most recently, this company slashed its 2021 production guidance and said that its expenses would come in above previous expectations. The EV maker also announced that it expects to end 2021 with $50 million to $75 million in cash and highly liquid assets, versus its previous guidance for “‘at least’ $200 million.”
What’s more, Lordstown warned that it’s “exploring different options to raise new capital.” As with most companies, the automaker’s options for improving its liquidity position will likely come down to either raising debt or selling more shares of RIDE stock. Neither option, of course, will be great for shareholders.
Finally, adding to my reservations about its technical prowess, its flagship EV truck only completed about a fifth of a race it was competing in back in April. Lordstown cited concerns about the Endurance’s off-road performance as its reason to quit.
RIDE Stock: Previous Red Flags and Apparent Risks
As I’ve noted in previous articles, though, RIDE stock has been plagued by issues before.
For example, Lordstown was accused of “largely fictitious” order numbers by Hindenburg Research not too long ago. Of course, the automaker completely denied these accusations. As I also noted before, however, many if not most of Hindenburg’s claims have turned out to be well-founded in the past.
Lordstown stated in a U.S. Securities and Exchange Commission (SEC) filing that it did not have “any current customers or any pending orders.” Statements aside, though, the SEC has still opened an investigation into the automaker.
On top of this, I have other concerns. For example, on the technical side, I’ve long questioned the wisdom of RIDE’s decision to place motors in each of the Endurance’s wheels. Plus, it’s also worth noting that the company faces a large amount of competition. Tesla (NASDAQ:TSLA), General Motors (NYSE:GM) and Ford (NYSE:F) — along with very successful startup Rivian — are all launching electric trucks relatively soon.
Given Hindenburg’s accusations, the SEC probe, the Endurance’s failures and the intense competition this name will face, Lordstown poses many powerful risks for shareholders. Specifically, it has gigantic execution, regulatory, financial and competitive risks plaguing it right now.
The Bottom Line on RIDE Stock
Despite the intense risks that Lordstown is facing, the valuation of RIDE stock remains quite elevated. Currently, the shares have a market capitalization of $1.81 billion. As a result, I certainly continue to urge any long-term investors to sell their stake in RIDE stock.
At this time, however, I do not advise shorting shares, either. I believe that Democrats and Republicans will likely reach a compromise on an infrastructure bill in the near future. Right now, both parties are moving closer to each other in terms of the cost of a bill. Moreover, both parties have important motivations to reach a compromise.
And in all likelihood, any compromise will likely have significant funding and tax breaks for the EV sector. After all, electric vehicles are being highly prioritized by President Joe Biden and his administration, as well as most Congressional Democrats. Because of that, I believe that all EV stocks — including RIDE stock — are likely to climb over the next few months.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
