VEV - Vicinity Motor: Elevated Execution Risk And High Likelihood Of Additional Dilution - Sell

Summary

• Company remains in the early innings of its intended transition to BEVs.
• Ongoing supply chain issues have caused management to suspend guidance.
• Company recently announced a $100+ million BEV truck purchase order from its exclusive dealer in British Columbia.
• While production financing has been lined up, investors will have to prepare for additional near-term dilution to cover ongoing operating losses and capex requirements.
• Given the high likelihood of further near-term dilution and elevated execution risk, investors should continue to avoid the shares or even consider existing positions.

Ten months ago, I downgraded shares of small Canadian, BEV-focused bus and truck manufacturer Vicinity Motor Corp. ( VEV ), or "Vicinity," from " Hold " to " Sell " after the company reported weak first quarter results and lowered full-year 2022 guidance quite meaningfully.

Things actually got worse as management decided to suspend guidance entirely following the company's Q2 report :

The global automotive industry supply chain continues to be stretched - until such a time that it catches up to demand, we will continue to work to engineer creative new solutions to address new problems wherever possible. Our goal is to continue to provide vehicles to our customers despite this environment, and we will continue to do so to the greatest extent possible. That being said, given the pressures we are seeing, we are suspending our prior financial guidance as the current supply chain environment makes it difficult to forecast and it appears many orders may be pushed from 2022 to 2023.

At the end of Q3 , Vicinity had burned through most of its cash on hand but raised approximately $5.3 million from selling new shares into the open market in Q4.

That said, following a $100+ million BEV truck purchase order from Vicinity's exclusive dealer in the province of British Columbia, the company managed to expand its credit facilities with Royal Bank of Canada and Export Development Canada in order to fund production:

(...)

The US$30 million credit facility is designed for use with Vicinity's VMC 1200 all-electric class 3 truck and can be used for up to 100% of eligible production costs on the vehicle, excluding labor and overhead from Vicinity's assembly plants. The interest rate on this new facility is prime plus 2% and is secured by the existing assets of the Company.

In addition to the US$30 million credit facility for the VMC 1200 trucks, RBC will continue to provide Vicinity with CAD$10 million in an asset-backed facility ("ABL") for use with its existing bus orders and a US$3 million letter of credit facility.

Unfortunately, the company's credit facilities can't be utilized for covering ongoing losses from operations and capex requirements thus resulting in the likely requirement to dilute shareholders even further going forward.

Please note also that Vicinity is currently not in compliance with the Nasdaq's $1 minimum bid price requirement. That said, the company has been provided a 180-day grace period until August 28 and under certain circumstances might be eligible for an additional 180-day period to regain compliance.

Bottom Line

Given the high likelihood of further near-term dilution and elevated execution risk due to the company remaining in the very early innings of its BEV transition, investors should continue to avoid the shares or even consider existing positions.

For further details see: