Don’t Bet On Lordstown Motors Rebound, Yet
Lordstown Motors (NASDAQ: RIDE) has been in a protracted downtrend along with the rest of the EV market and that downtrend is not over yet. While Lordstown Motors issues a better than expected report the headlines are about all the good news there is. The company also reports a potential cash problem that could results in a delay in production and delivery timelines, to say the least. The biggest problem is that the much-touted deal with Foxconn is yet to close and the deadline is fast approaching. If no deal is reached the company will have to refund $250 million in cash and somehow come up with the difference. As it is now, company CFO Adam Knoll says Lordstown will probably need a cash injection of $150 million by the end of the year even with the Foxconn deal so we aren’t holding our breath. The bottom line, it’s still too early to invest in start-up quality EV companies like this one.
Loss Narrows At Lordstown Motors
Lordstown Motors had a better-than-expected quarter but that’s not saying much for a company with no revenue. The company reported a -17.3% decline in YOY operating expenses which is good news, and a decline in the net loss which is also good news, but the company is still bleeding cash and has only $203 million on hand, not counting capital held in reserve to cover the Foxconn investment.
Assuming the Foxconn deal does not go through, Lordstown Motors will be in more than a cash crunch with less than $60 million in funds and it may find itself in dire straits despite the expected start of production of its flagship vehicle. The company was able to stand by its production start time but that statement is fraught with risk because it relies on some positive movement on the deal with Foxconn and an expectation it can raise whatever money it needs. With the company falling short on cash and no deal in sight, production of the Endurance pickup truck may never begin at all.
"We made significant progress toward launching the Endurance during the first quarter, notwithstanding unprecedented supply chain challenges. Our highest priority remains to get the Endurance into customers' hands so they can experience the unique attributes of the truck themselves," said Daniel Ninivaggi, CEO of Lordstown Motors. "We also continue to work closely with Foxconn to close our pending transaction and strengthen our manufacturing and product development partnership."
As optimistic as the report is, the analysts aren’t buying it any more than we are. There’ve been no commentaries since the release which leaves the trend in sentiment downward. The 8 analysts that still rate the stock have it pegged at sell with a price target near $4. The $4 price target is more than 100% above the current market action but don’t get excited, it is trending lower in the 12-month, 3-month, and 1-month comparison and will likely continue to fall in the near to mid-term at least.
The Technical Outlook: Lordstown Motors Investors Get Taken For A RIDE
Shares of Lordstown Motors have been trending lower since early in 2021 and may continue to trend lower in the near term at least. Although price action is showing some signs of overextension at these levels, that is largely due to short selling so any rebound in prices should not be trusted. Longer-term, if the company can round the bend in terms of cash and production schedules, the stock should put in a bottom and give the kind of signal we like to see in a stock we want to own. Until then, we are content to sit on the sidelines and see what happens.
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