After Announcing a New CEO, is Lordstown Motors Worth Buying?

Founded in 2018, Lordstown Motors Corp. (RIDE) is an electric light-duty vehicle manufacturer based in Lordstown, Ohio. The company went public through a SPAC deal with blank check company DiamondPeak Holdings on October 26, 2020.

RIDE’s board of directors appointed Daniel A. Ninivaggi as CEO and board member on August 26. RIDE shares have popped 15.3% in price since the appointment to close yesterday’s trading session at $6.47. Ninivaggi is the former CEO of Icahn Enterprises, with extensive experience in the automotive industry.

Regarding Ninivaggi’s appointment, RIDE Board CEO Search Committee Chairman David Hamamoto said, “The Board is enthusiastic about Dan’s appointment as CEO. We are impressed with his broad automotive background, track record, strategic thinking, and team-oriented leadership talent. Furthermore, his capital markets expertise and investment proficiency will be invaluable in navigating the company through its commercial ramp-up, capital allocation, and growth phase. We unanimously concluded that he has the optimal combination of skills and public company experience to lead Lordstown Motors at this time.”

Click here to checkout our Electric Vehicle Industry Report for 2021

Here’s what could shape RIDE’s performance in the near term:

Going Concern Warning

RIDE has filed an amended Form 10/K-A with the SEC, stating substantial doubt in its ability to operate as a going concern. Its current cash and cash equivalents balance is not sufficient to commence  production. RIDE’s cash and cash equivalents balance declined 41.9% in the first six months of 2021 to $365.90 million as of June 30.

On July 23, the company signed an equity purchase agreement with hedge fund YA II PN, LTD. to sell approximately 35 million shares for $400 million over the next three years. However, this funding might not be able to cover all the company’s capital and SG&A expenses. RIDE expects its capital expenditures to be in the range of $375 million - $400 million in its fiscal year 2021. Its operating expenses are projected to be in the range of $95 million - $105 million, while research and development (R&D) expenses are expected to be between $310 million - $320 million in the current year.

Hindenburg Report and SEC Investigation

On March 12, Hindenburg Research published a report stating that RIDE had overstated its existing purchase orders and production capabilities and that “the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy.” Though RIDE denied such claims initially, an SEC probe was launched to review Hindenburg’s claims.

On June 17, after the SEC probe, the company announced that it had no binding purchase orders or firm purchase commitments for its Endurance truck, owing to its limited marketing activities. This follows RIDE’s previous claims of having enough firm and binding orders for 2021 and 2022, as announced by President Rich Schmidt at an Automotive Press Association event. In addition, RIDE CEO Steve Burns and CFO Julio Rodriguez resigned amid the controversy of overstating the volume of pre-orders to mislead investors.

DOJ Probe

Last month,  RIDE announced that its business operations, including its reverse merger with DiamondPeak Holdings, were being investigated by the Department of Justice (DOJ). While the details of the criminal probe are not disclosed, the early-stage investigation is expected to be a significant challenge for the company to achieve its goal of commencing  Endurance truck production next month. Apart from the damage to its goodwill, RIDE’s cash and cash equivalents balance is expected to take a major hit to cover all the legal expenses from the DOJ probe, provided the investigation yields results.

Also, several shareholders’ rights and securities law firms are investigating RIDE’s reverse merger based on allegations regarding its  potential breach of fiduciary duties and misleading statements.

POWR Ratings Reflect Bleak Prospects

RIDE has an overall F rating, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each actor weighted to an optimal degree.

RIDE has an F grade for Value and Sentiment. The stock’s negative forward P/E ratio is in sync with the Value grade. In addition, analysts expect the company’s EPS to remain negative until at least next year, justifying the Sentiment grade.

Of the 63 stocks in the D-rated Auto & Vehicle Manufacturers industry, RIDE is ranked #61.

In addition to the grades we’ve highlighted, we have rated RIDE for Stability, Momentum, Quality, and Growth. Get all RIDE ratings here.

Click here to check out our Automotive Industry Report for 2021

Bottom Line

The EV startup is yet to begin production of its Endurance electric truck. While RIDE has stated that it is on track to produce its vehicles commercially in September 2021, it doesn’t have adequate purchase agreements, indicating uncertain sales volume. RIDE’s appointment of a new CEO has resulted in a double-digit percentage gain by the stock. However, given the company’s weak fundamentals, poor cash balance, and ability to operate as a going concern, the stock is best avoided now.

How Does Lordstown Motors (RIDE) Stack Up Against its Peers?

While RIDE has an F (Strong Sell) rating in our proprietary rating system, one  might want to consider taking a look at its industry peers Suzuki Motor Corporation (SZKMY), Isuzu Motors Limited (ISUZY), and Daimler AG (DDAIF), which have an A (Strong Buy) rating.

Click here to checkout our Electric Vehicle Industry Report for 2021

RIDE shares were trading at $6.47 per share on Tuesday morning, down $0.00 (0.00%). Year-to-date, RIDE has declined -67.75%, versus a 21.51% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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