Amid another soft backdrop on Wall Street, electric vehicle upstart Lordstown Motors (NASDAQ:RIDE) continues to generate headlines for dubious reasons. According to Reuters, Lordstown stated on Thursday that it received a delisting notice from Nasdaq. In response, management is evaluating multiple actions, including a reverse split, to regain compliance. However, RIDE stock slipped on the underlying cynicism as well as broader EV industry pressures.
Per the news report, “[t]he company received the notice because the closing bid price for the electric-truck maker’s class A common stock fell below the minimum required price of $1 per share for 30 straight sessions, according to a regulatory filing.” Notably, in the trailing five sessions, RIDE stock fell about 11%.
Because the listing requirements center on nominal share price and not on fundamental valuations (such as earnings per share), theoretically, non-compliant companies only need to boost the underlying price tag through whatever technical mechanisms available. A reverse stock split accomplishes this task while maintaining proportional equity ownership ratios; thus, nothing substantively changes.
However, the Financial Industry Regulatory Authority (FINRA) warns its readers that “[i]f a reverse split is announced and actually occurs, proceed with caution. Reverse splits tend to go hand in hand with low-priced, high-risk stocks.” Frankly, this aptly describes RIDE stock and the troubles underlying its industry.
RIDE Stock Faces Significant Sector-Wide Pressure
Per Reuters, Lordstown put in a proposal on April 11 to get an approval for a reverse split during the annual shareholder meeting, slated for May 22. The proposed split ratio ranges from 1-for-3 to 1-for-15. Notably, the company will have until Oct. 16 to regain compliance. Nevertheless, that’s just one obstacle facing RIDE stock.
Throughout the post-pandemic new normal, supply chain disruptions and later skyrocketing inflation imposed massive headwinds on EV manufacturers. During this period, Lordstown struggled mightily to launch its Endurance electric truck. While it announced an initial batch of 500 Endurance models for delivery last year, Lordstown halted production due to a quality-related voluntary recall, according to Electrek.
If that wasn’t enough pressure on RIDE stock, Lordstown must also contend with a brewing sector-wide price war. Earlier this week, Tesla (NASDAQ:TSLA) announced its first-quarter earnings results, revealing a decline in margins. This development surprised few as the company cut pricing for its EVs several times between January and April.
Almost invariably, the price cuts will force other EV manufacturers to respond, sparking a war of attrition. Conspicuously, rival EV upstart Rivian Automotive (NASDAQ:RIVN) strained against the implications, with RIVN dropping 12% in the trailing five sessions. Unfortunately, then, the circumstances appear gloomy for RIDE stock.
Why It Matters
Nevertheless, on a positive note, RIDE stock suffers no underlying debt, a luxury many enterprises don’t have. However, that seems to matter little to Wall Street analysts, who peg Lordstown as a consensus moderate sell. The most pessimistic price target sees RIDE hitting 50 cents. At time of writing, shares trade hands at 48 cents.
On the date of publication, Josh Enomoto 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.
