RIDE - Lordstown Motors: Q4 Miss And Recent Developments Reinforce My Bearish View

2023-03-07 07:30:00 ET

Summary

• Lordstown Motors' Q4 2022 top line and bottom line came in below the Wall Street analysts' expectations.
• Production of the Endurance EV could be suspended for a longer time if it can't find suitable partners; it is highly likely that Lordstown will need to raise more funds.
• I retain a Sell rating for Lordstown Motors, as recent developments and its below expectations fourth quarter results support my negative opinion of RIDE.

Elevator Pitch

I rate Lordstown Motors Corp.'s ( RIDE ) shares as a Sell.

I previously lowered my investment rating for RIDE from a Hold to a Sell on concerns about the company's financing and production with my earlier March 18, 2022 write-up . As per Seeking Alpha's price data, Lordstown Motors' stock price has fallen by -64% since my prior update, while the S&P 500 was down by just -9% in the same time frame.

My bearish view of Lordstown Motors remains unchanged, which justifies a Sell rating for RIDE. Recent developments suggest that RIDE is still facing substantial challenges relating to production and financing. Lordstown's recent Q4 2022 financial performance was also a disappointment that led to a -9% sell-down in the company's shares on the day of its results announcement.

The Wall Street's Consensus Q4 2022 Financial Projections For RIDE

The sell-side had anticipated that Lordstown Motors will record meaningful revenue for the first time in its history and report much narrower losses in the fourth quarter of last year prior to its actual results release on March 6 before trading hours.

In specific terms, the analysts had earlier estimated that RIDE's Q4 2022 revenue and non-GAAP adjusted net loss per share will be $1.25 million and -$0.24 per share , respectively.

As detailed in the subsequent section of this article, Lordstown Motors failed to live up to the market's expectations.

Lordstown Motors' Fourth Quarter Results Fell Short Of Expectations

RIDE's financial performance for the fourth quarter of 2022 wasn't as good as what the Wall Street analysts had hoped for. This is evidenced by the fact that Lordstown Motors' share price dropped by almost -9% to close at $1.02 on the day that its financial results were announced (March 6).

Lordstown Motors registered revenue of $194,000 in Q4 2022 relating to the delivery of three Endurance EVs (Electric Vehicles). But RIDE's actual quarterly top line merely represented 16% of the market's consensus revenue forecast ($1.25 million).

Net loss per share for RIDE narrowed from -$0.42 for Q4 2021 and -$0.38 for Q3 2022 to -$0.30 in the most recent quarter. However, Lordstown Motors' Q4 2022 net loss per share still turned out to be worse than the sell-side analysts' consensus bottom line estimate of -$0.24 per share.

Quarterly headline financial metrics are the key indicators that provide a measure of Lordstown Motors' execution capabilities. Below-expectations deliveries, revenue and losses for RIDE in the recent quarter are disappointing to say the very least.

Production Halt Is A Worrying Development

Before RIDE reported its Q4 results on March 6, the company had revealed earlier on February 23 that it initiated a "production and delivery pause" due to "performance and quality issues with certain Endurance components." These issues are likely to be resolved in time to come, but there is a chance that the production halt for the Endurance EV might be prolonged.

At the company's most recent Q4 2022 earnings briefing on March 6, 2023, Lordstown Motors stressed that there is a high probability of RIDE continuing to suspend production unless it finds the right OEM partners. A year ago in February 2022 during the Q4 2021 results call , RIDE had already mentioned about the need to seek out partners to lower the BoM (Bill of Materials) cost for the Endurance EV.

The Endurance EV's BoM cost on a per unit basis alone without considering other expenses is approximately $42,000 as disclosed by management previously; while the sales price for Endurance EV is around $65,000 . The numbers are consistent with RIDE's claim that it won't be able to make a profit selling Endurance EVs unless it works with OEM partners to lower its BoM cost.

Further Fund Raising Is Unavoidable

As disclosed in its Q4 2022 financial results presentation slides , Lordstown Motors raised about $262.5 million of fresh capital last year, of which $210.7 million was contributed by Foxconn (FXCOF) or Hon Hai Precision Industry Co., Ltd. ( OTCPK:HNHAF ) ( OTCPK:HNHPF ) [2317:TT]. The $210.7 million of funds derived from Foxconn comprised of fixed asset divestment proceeds, and the issuance of new common stock and preferred stock.

Looking forward, Foxconn is expected to provide an additional $117.3 million of funds for RIDE in 2023, but $70 million of capital funded by Foxconn is specifically allocated to the joint venture between RIDE and Foxconn focused on developing a new EV.

As a point of reference, the Wall Street analysts are forecasting that RIDE's cash burn will be -$459 million and -$482 million for fiscal 2023 and FY 2024, respectively. It is reasonable to assume that Lordstown Motors requires much more capital to keep its business operations going.

RIDE acknowledged at its most recent quarterly earnings call that Foxconn's financing will only "cover the planned predevelopment work for the new vehicle program." Lordstown Motor also emphasized that "scaling the Endurance" needs "substantial additional capital."

Recent financing activities, consensus financial projections and management commentary all point to a high likelihood of further capital raising for Lordstown Motors in due course. This will naturally create an overhang on RIDE's shares.

Closing Thoughts

I continue to have an unfavorable opinion of Lordstown Motors' shares. RIDE's Q4 2022 miss and worrying developments relating to production and financing imply that the stock warrants a Sell rating.

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