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Why Riding the EV Wave With RIDE is Akin to Playing With Fire
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Capitalizing on the excitement surrounding green vehicles, many electric vehicle (EV) companies went public last year. Investors were piling up these EV startups, with little regard to underlying fundamentals. The fear of missing out prompted investors to bet heavily on these stocks and they were even ready to pay huge premiums for the same. The stunning gains in the stock price of most of such EV startups pushed their market values exuberantly.
Eventually, the bubble burst and share price correction that followed have been brutal for most EV startups. In fact, quite a few of these firms have come under the scrutiny of Department of Justice (“DOJ”), and Securities and Exchange Commission (“SEC”) of late. One EV startup whose challenges just do not seem to abate is Lordstown Motors . Lordstown made NASDAQ debut on Oct 26, 2020, after completing a reverse merger with DiamondPeak Holdings. The stock has declined more than 51% since its IPO.
Lordstown, which has already been grabbing eyeballs for all the wrong reasons, is in for more tough times ahead. The embattled EV firm is currently under probe by DOJ, the second official investigation into the firm this year after SEC scrutiny. Shares of Lordstown tumbled more than 10% on Friday, after Wall Street reported that that the firm has come under the DOJ lens.
Lordstown Running Into a Blank Wall
Well, Lordstown started off its journey on a positive note. Founded in 2019 by Steve Burns, the company has backing from the U.S. auto giant General Motors (GM - Free Report) , with the latter holding a minority stake in Lordstown. In November 2019, General Motors sold its 6.2 million-square-foot Lordstown Assembly plant to the EV startup. Purchase of the factory and the startup itself received much support from the Trump administration. Lordstown stated that it would build Endurance electric pickup at the plant, which would boast 600 horsepower and a range exceeding 250 miles on a single recharge. The company went public in October 2020, which helped it raise $675 million.
It has not even been a year and the company recently revealed that it does not have enough capital to commence commercial production of its debut pick-up truck at scale. Here’s a rundown of the series of unfortunate events that have hit the company hard.
In March 2021, short-selling firm Hindenburg Research charged fraud allegations on Lordstown. Hindenburg accused the EV startup of misleading investors and consumers about the demand for its upcoming electric pick-up truck. Early 2021, Lordstown claimed to have secured more than 100,000 preorders for Endurance. The report noted that the number of pre-orders for Endurance was greatly exaggerated, and that Lordstown might have paid consultants to generate fictitious preorders in order to raise more capital and build a credibility factor for the company. The report also questioned the viability of the technology utilized in Endurance and the company’s ability to start production of the same in September 2021.
Burns brushed aside the accusations by responding, “There’s always haters. I quoted Taylor Swift to somebody the other day, ‘Haters going to hate, hate, hate, hate, hate. You gotta shake it off.”
In the wake of the fraud charges, SEC opened investigation into the embattled EV maker. Meanwhile, Lordstown also launched its own review. It established a Special Committee of independent directors to investigate the allegations made in the report.
The findings of the committee concluded that the Hindenburg report was false and misleading for most significant matters. The probe found no issues with the viability of Lordstown Motors’ technology and timeline to start of production. Nevertheless, the investigation did point out flaws regarding the accuracy of statements pertaining to pre-orders for the Endurance truck. Internal investigation found out that some preorders — non-binding letters of intent that require only a signature — had been secured from companies that did not intend to purchase the vehicle, while other firms that had signed letters of intent did not have enough resources to complete the purchase.
With the review confirming that Burns and others misled investors regarding preorder claims, the news of Burns and Rodriguez’s (CEO and CFO of Lordstown) resignations surfaced. What’s more, the company’s cash crunch added to the woes. In May, Lordstown admitted that it did not have enough cash on hand to produce as many Endurance vehicles it had intended to and hence slashed production targets. The company, in fact, raised doubts about its ability to meet financial obligations over the next year. Amid lack of capital, it also ceased work on its electric van, which was supposed to be the second vehicle offering by the firm.
Now, with the Justice Department joining the SEC probe amid various challenges faced by Lordstown, chances of the firm coming back on track is highly questionable at this moment.
Is This the Beginning of the End?
Lordstown is currently in the pre-revenue stage, with no sellable product as of now. As it is, the EV market is highly overcrowded and the company not only has to compete with industry stalwarts but also with new EV startups like Canoo (GOEV - Free Report) and Nikola (NKLA - Free Report) , among others. Lordstown currently carries a high short interest — as a percentage of float — of around 22%. Currently, there’s also a high uncertainty regarding the production of Endurance truck.
Apart from dual investigations by DOJ and SEC, Lordstown’s ‘going concern’ warning has raised red flags and cast a pall over the firm’s survival. Amid such pessimism surrounding the firm, the sharp correction in the stock price of Lordstown is not a buying opportunity for rational investors. Things may go further downhill from here. Hence, it is advisable to stay away from Lordstown until the charges against the firm are put to rest. Lordstown currently carries a Zacks Rank #4 (Sell).
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research SherazMian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Shutterstock
Why Riding the EV Wave With RIDE is Akin to Playing With Fire
Capitalizing on the excitement surrounding green vehicles, many electric vehicle (EV) companies went public last year. Investors were piling up these EV startups, with little regard to underlying fundamentals. The fear of missing out prompted investors to bet heavily on these stocks and they were even ready to pay huge premiums for the same. The stunning gains in the stock price of most of such EV startups pushed their market values exuberantly.
Eventually, the bubble burst and share price correction that followed have been brutal for most EV startups. In fact, quite a few of these firms have come under the scrutiny of Department of Justice (“DOJ”), and Securities and Exchange Commission (“SEC”) of late. One EV startup whose challenges just do not seem to abate is Lordstown Motors . Lordstown made NASDAQ debut on Oct 26, 2020, after completing a reverse merger with DiamondPeak Holdings. The stock has declined more than 51% since its IPO.
Lordstown, which has already been grabbing eyeballs for all the wrong reasons, is in for more tough times ahead. The embattled EV firm is currently under probe by DOJ, the second official investigation into the firm this year after SEC scrutiny. Shares of Lordstown tumbled more than 10% on Friday, after Wall Street reported that that the firm has come under the DOJ lens.
Lordstown Running Into a Blank Wall
Well, Lordstown started off its journey on a positive note. Founded in 2019 by Steve Burns, the company has backing from the U.S. auto giant General Motors (GM - Free Report) , with the latter holding a minority stake in Lordstown. In November 2019, General Motors sold its 6.2 million-square-foot Lordstown Assembly plant to the EV startup. Purchase of the factory and the startup itself received much support from the Trump administration. Lordstown stated that it would build Endurance electric pickup at the plant, which would boast 600 horsepower and a range exceeding 250 miles on a single recharge. The company went public in October 2020, which helped it raise $675 million.
It has not even been a year and the company recently revealed that it does not have enough capital to commence commercial production of its debut pick-up truck at scale. Here’s a rundown of the series of unfortunate events that have hit the company hard.
In March 2021, short-selling firm Hindenburg Research charged fraud allegations on Lordstown. Hindenburg accused the EV startup of misleading investors and consumers about the demand for its upcoming electric pick-up truck. Early 2021, Lordstown claimed to have secured more than 100,000 preorders for Endurance. The report noted that the number of pre-orders for Endurance was greatly exaggerated, and that Lordstown might have paid consultants to generate fictitious preorders in order to raise more capital and build a credibility factor for the company. The report also questioned the viability of the technology utilized in Endurance and the company’s ability to start production of the same in September 2021.
Burns brushed aside the accusations by responding, “There’s always haters. I quoted Taylor Swift to somebody the other day, ‘Haters going to hate, hate, hate, hate, hate. You gotta shake it off.”
In the wake of the fraud charges, SEC opened investigation into the embattled EV maker. Meanwhile, Lordstown also launched its own review. It established a Special Committee of independent directors to investigate the allegations made in the report.
The findings of the committee concluded that the Hindenburg report was false and misleading for most significant matters. The probe found no issues with the viability of Lordstown Motors’ technology and timeline to start of production. Nevertheless, the investigation did point out flaws regarding the accuracy of statements pertaining to pre-orders for the Endurance truck. Internal investigation found out that some preorders — non-binding letters of intent that require only a signature — had been secured from companies that did not intend to purchase the vehicle, while other firms that had signed letters of intent did not have enough resources to complete the purchase.
With the review confirming that Burns and others misled investors regarding preorder claims, the news of Burns and Rodriguez’s (CEO and CFO of Lordstown) resignations surfaced. What’s more, the company’s cash crunch added to the woes. In May, Lordstown admitted that it did not have enough cash on hand to produce as many Endurance vehicles it had intended to and hence slashed production targets. The company, in fact, raised doubts about its ability to meet financial obligations over the next year. Amid lack of capital, it also ceased work on its electric van, which was supposed to be the second vehicle offering by the firm.
Now, with the Justice Department joining the SEC probe amid various challenges faced by Lordstown, chances of the firm coming back on track is highly questionable at this moment.
Is This the Beginning of the End?
Lordstown is currently in the pre-revenue stage, with no sellable product as of now. As it is, the EV market is highly overcrowded and the company not only has to compete with industry stalwarts but also with new EV startups like Canoo (GOEV - Free Report) and Nikola (NKLA - Free Report) , among others. Lordstown currently carries a high short interest — as a percentage of float — of around 22%. Currently, there’s also a high uncertainty regarding the production of Endurance truck.
Apart from dual investigations by DOJ and SEC, Lordstown’s ‘going concern’ warning has raised red flags and cast a pall over the firm’s survival. Amid such pessimism surrounding the firm, the sharp correction in the stock price of Lordstown is not a buying opportunity for rational investors. Things may go further downhill from here. Hence, it is advisable to stay away from Lordstown until the charges against the firm are put to rest. Lordstown currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research SherazMian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>