Lordstown Motors (NASDAQ:RIDE), a deeply embattled electric vehicle manufacturer, expects to end production of its Endurance pickup truck “in the near future,” according to a startling report by CNBC. Running out of cash and seeking additional capital, Lordstown suffered a hit due to a conflict with contract manufacturer Hon Hai Precision Industry (OTCMKTS:HNHPF), which also operates under the name Foxconn. Even without this headwind, RIDE stock faces severe electric vehicle (EV) sector-related obstacles.
The production halt warning stems from an unscheduled Thursday quarterly earnings filing. “To date, we have not identified a strategic partner for the Endurance. To the extent we do not identify such a partner, we anticipate that production of the Endurance will cease in the near future,” Lordstown stated in the filing, referencing the Foxconn impact.
Last month, Foxconn alleged that Lordstown breached the terms of their investment deal because RIDE stock fell below $1. By slipping beneath this baseline requirement price point for 30 consecutive trading days, the action triggered a delisting notice from Nasdaq. Because of fears that Foxconn can pull out, only to leave Lordstown destitute, RIDE suffered hefty losses.
RIDE Stock Suffers from Key Headwinds
To be sure, Lordstown isn’t giving up without a fight. Management revealed that it continues to discuss the matter with Foxconn, though they have yet to reach an agreement. Critically for RIDE stock, though, the automaker referenced an “extremely limited ability to raise capital in the current market environment.”
Naturally, the Federal Reserve represents a major culprit. Throughout last year, the central bank implemented aggressive interest rate hikes to combat inflation. Even this year, the Fed remains hawkish. As InvestorPlace pointed out, even with policymakers signaling a pause in rate hikes, they left the door open for more tightening.
Unfortunately, this policy confusion doesn’t help anybody. And it most certainly doesn’t help Lordstown, which needs a firm foundation to bank on.
Another headwind against RIDE stock is the EV sector price war. With Tesla (NASDAQ:TSLA) slashing prices for its highly desired EVs since January, competing manufacturers must respond to stay relevant. However, for Lordstown, this circumstance imposes a conundrum.
To cut prices, Lordstown must have a large footprint to benefit from economies of scale. But in order to achieve that footprint, it must have capital. Unfortunately, no enterprise wants to risk their money in the flailing enterprise.
Why It Matters
Having entered the capital market via a merger with a special purpose acquisition company (SPAC), Lordstown initially started off with a bang. At one point, shares briefly breached the $30 level. However, earlier this week, RIDE stock slipped below 30 cents. Given the severe risk profile, most investors may want to steer clear.
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.
