The past few months have been rough for Lordstown Motors (NASDAQ:RIDE) stock. From August 2020, through February 2021, shares in this former SPAC (special purpose acquisition company) turned electric vehicle (EV) play were flying high.
With investors excited to play the EV megatrend, shares zoomed to prices above $30 per share.
But, since then, shares have pulled back tremendously (more than 70%). And, at around $9.20 per share, they’ve fallen below their $10 per share SPAC offering price.
So, what happened here? In general, EV plays (both established and early stage) have sold off during the same timeframe. Yet, in the case of Lordstown, other issues have weighed down on shares. Namely, a scathing report from a prominent short-seller (released in March) brought to light many red flags about the company and its future prospects.
These include dubious non-binding pre-orders, production delays and an unsuccessful road test for its flagship vehicle, the Endurance pickup truck. The company may have tried to reassure investors, dismissing the report as being filled with “half truths and lies.” But, as seen from the stock’s big slide, the markets have taken the claims seriously. If that’s not bad enough, the Securities and Exchange Commission (SEC) launched an inquiry based on the report as well.
With all these red flags, it’s clear this isn’t a great way to gain exposure to the EV megatrend. As more investors agree, and throw in the towel on their position, shares stand to fall further into the single digits.
RIDE Stock and Its Many Red Flags
Up until the aforementioned “short report,” the “story” behind Lordstown Motors was more than enough to keep investors happy. With its booming pre-order numbers, and its ties to an incumbent automaker, it’s easy to see why many believed that its line of electric pickup trucks would, down the road, become a major brand among truck buyers.
But now, with all the negative press, the hype has all but dissipated. Its booming pre-order numbers? Investors now take them with a grain of salt. Production delays? The company originally intended to start building its trucks late last year. But, it has since pushed back the start date to September 2021.
Yet, the red flag that has done the most to erode investor confidence may be the results of its prototype test drive. Per the prominent short-seller’s exposé, and corroborated by police reports, within ten minutes of starting the test drive, the vehicle caught fire.
Clearly, the Endurance is far from being ready for prime time. Sure, when building an automotive company from the ground up, you’re going to have a few hiccups. But, other EV startups have managed to stick to their timelines. Not only that, legacy car makers have adapted to the industry’s electrified future at a rapid pace. Putting it simply, it’s easy to see this once-promising startup get left in the dust.
A Long-Shot ‘Also Ran’ at Best
Lordstown may no longer be putting out fires (literally) with its flagship truck. But, as seen from its failure to complete a motor race in Baja, Mexico last month, the company still has its work cut for it. Meanwhile, both rival EV startups, along with the established automakers, are making major progress bringing electric vehicles to market.
Yes, as long as it’s just going after the pickup/van market, it faces less direct competition with EV companies going after the luxury sedan and SUV markets. But just because it’s focusing on just pickup trucks and vans doesn’t mean the competition isn’t heating up. The “old school” Detroit automakers, including the one that sold Lordstown its production facility, are investing billions to bring EV versions of their popular trucks to market.
Lacking the scale and expertise of its competition, this company’s odds of becoming a major EV truck brand are slim. More likely than not, the company will fail to get its act together. With this, expect additional erosion of confidence. And, in turn, lower prices for RIDE stock.
The lion’s share of its still-inflated market capitalization ($1.63 billion) is built upon future projections. Yet, if these projections fail to pan out, and it burns through its more than $600 million war chest, it’s easy to see the stock see another high double-digit decline from here.
Don’t Waste Your Time With Lordstown
Up until February, investors had little opportunity to look “under the hood” with this EV startup. But since then, they’ve been able to do so. The verdict? This would-be “disruptor” stands little chance of giving the established names a run for their money.
As the company continues to stumble, while rivals make progress, RIDE stock will continue hitting new lows. With better EV plays out there, don’t waste your time with this one.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.