RIVN - Lordstown: Sell While You Can

2023-03-06 14:40:49 ET

Summary

• Lordstown sold just 3 Endurance vehicles in Q4 2022.
• Cash position will need more help as year progresses.
• Endurance production restart won't be quick.

On Monday morning, we received fourth quarter results from Lordstown Motors ( RIDE ). The startup electric vehicle maker was expected to make big progress this year in its production ramp of the Endurance pickup truck, but things hit a speed bump recently. With no major sales planned for the near term, another capital raise seems rather likely, meaning this stock could see new lows at some point.

The company was able to sell just three Endurance vehicles in Q4, recording total revenue of just under $200,000. Unfortunately, the cost of goods sold, which included a number of startup and inventory charges, was over $30 million. Like we've seen with a number of early stage electric vehicle makers, gross margins remain heavily negative until production levels get to a really meaningful amount. A competitor like Rivian ( RIVN ) that sold over 8,000 vehicles in Q4 continued to lose large amounts of money, which recently sent its shares a bit lower .

In total, the operating loss for Lordstown was over $104 million for Q4, but that figure did include an impairment charge of more than $36 million. The operating loss did narrow for the year, even when including over $111 million in impairment charges, but this company is still losing a ton of money. As production slowly ramps, there will be even more losses as the company works to build out its sales and infrastructure base. One of the keys that investors were waiting for in this report was an update on the cash situation, which is detailed below from the press release:

At the end of 2022, cash and short-term investments were $221.7 million, approximately $18 million higher than the third quarter of 2022. The change in cash includes $42.7 million in cash used for operations, inclusive of a $21.1 million working capital investment, $2.9 million in capital expenditures, net of $1.1 million in asset sale proceeds, and $63.7 million in cash proceeds from the issuance of common and preferred stock, including $52 million purchased by Foxconn.

Lordstown management guided to a Q1 2023 ending cash balance of between $150 million and $170 million. That doesn't include any other money coming in from equity sales or the Foxconn investment, which has a little over $117 million remaining to come in, based on regulatory approvals and certain EV milestones. However, if this company truly wants to compete in this space, it's likely to need a lot more capital, and investors have already been diluted a bit in recent quarters.

Perhaps the biggest issue right now for the company is that it was forced to stop production of the Endurance recently due to quality issues. The company will provide an update in the coming weeks on when production will restart, but it's not likely to be this month. During the conference call, the CEO stated that a new partner beyond Foxconn will be needed to avoid further production hiccups , and that if a new partner is not found, commercial production of the Endurance may need to be paused.

Every week that the Endurance pause lasts only makes it harder for Lordstown to make an impact in this highly competitive space. We're only a week away from automotive giant Ford ( F ) restarting production of its F-150 Lightning electric pickup, which is expected to reach a run rate of over 10,000 units a quarter by the end of this year. EV giant Tesla ( TSLA ) is expected to make the first deliveries of its Cybertruck later this year, while other established automakers are also entering the electric pickup space.

In Monday trading, Lordstown shares were down a few percent to $1.05 per share. While the average price target on the name was $1.25 going into the quarterly report, I'm guessing analysts will be reducing their valuations based on this negative update. With a market cap of less than $250 million currently, any major equity raise will likely be highly dilutive. Additionally, should shares fall below $1 for an extended period of time, a reverse split may be needed at some point to satisfy exchange listing requirements.

In the end, Lordstown's Q4 update was not what investors were hoping for. The company has barely recorded any revenue so far, and Endurance production is on hold for at least a few more weeks. With cash coming down by the quarter and losses remaining to be large for some time, this business is going to need a lot more capital. Unless Lordstown can get production volumes to decent levels rather soon, which is highly doubtful at this point, it seems that shares could see new lows this year.

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