GM - Lordstown Motors: Last Chance To Sell

2023-05-23 11:25:14 ET

Summary

• Lordstown announces 1 for 15 reverse split.
• Foxconn dispute hurts capital raise efforts.
• Endurance unit volumes remain very low.

Back in March, I detailed how investors in electric truck startup Lordstown Motors ( RIDE ) should sell while they still could . The company had hit a major speed bump with its Endurance truck production ramp, and its dwindling cash position was likely to need major help this year. On Tuesday, we got a major update from the company regarding its shares, one that could potentially add even more selling pressure.

I mentioned previously that a fall below $1 a share could eventually result in a reverse split. Well, that was exactly what was announced on Tuesday, with a ratio of 1 to 15 happening after the day's close. This should put the stock back around $4, and will help to satisfy exchange listing requirements. I'll note that Lordstown shares have lost more than 70% since my previous article.

Generally speaking, reverse splits are not good news for a company. The fact that shares are only trading at 27 cents currently, down from a 52-week high of $3.73, signals that investors do not believe in the name. We saw another EV startup late last year do a similar thing, as Arcimoto ( FUV ) had a 1 for 20 split to satisfy listing requirements. That name initially got its stock price back up over $8 with the split, but it is now back down to under $1.50 again.

Lordstown has two major issues currently. The first is that it's involved in a legal battle with investment partner Foxconn over a deal to purchase Lordstown shares. Foxconn is claiming that the April 21, 2023, letter that Lordstown received from Nasdaq regarding the Bid Price Requirement caused a failure of a condition to closing Foxconn’s purchase of approximately 10% of the company’s common stock for $47.3 million.

Lordstown has stated that bankruptcy could be a possibility if this dispute is not resolved. At the end of April, the company had cash and investments of approximately $165 million, a decrease of approximately $11 million from the end of Q1. In the first three months of the year, Lordstown burned about $46 million in cash as it continues to report large quarterly losses. Management has taken actions to preserve capital, but we're not likely to see any real profitability or positive cash flow delivered here anytime soon.

The other issue I covered previously was the suspension of production for the company's Endurance pickup due to quality issues. We did get a major update on Tuesday, but the overall numbers for the vehicle remain quite low. Since start of commercial production, the company has completed 56 Endurance vehicles and delivered 18 to customers, 12 since resuming deliveries in late April. Management has noted in the past that if it cannot access new sources of funds moving forward, it may have to fully stop Endurance production. Lordstown faces stiff competition from the likes of Ford ( F ), General Motors ( GM ), and Tesla ( TSLA ) that are looking to sell tens of thousands of electric pickups per quarter in the coming years.

In the end, the situation at Lordstown continues to be quite negative. As expected, the company has announced a reverse split to get its shares back above $1. The dispute with Foxconn remains ongoing, with bankruptcy on the table if a deal isn't reached. Even if the legal battle is resolved, investors are going to face a bit of dilution moving forward as Lordstown tries to get the Endurance production ramp going. While this stock already is near its all-time low, percentage losses can still be great moving forward if this company doesn't get its act together rather quickly.

For further details see: