Everybody knows, electric vehicles are the future. Like many governments across the globe, the environmentally conscious Biden administration has made new energy mandates a core part of its modus operandi. This is evident by the $74 billion Biden has said he intends to commit toward the nascent EV segment.
The auto industry is pivoting toward the anticipated adoption, with legacy auto makers aware of the need to keep up with upstarts looking to make their mark in this potentially lucrative new market.
One such company hoping to ride this wave is Lordstown Motors (RIDE), which focuses on the commercial and government fleet market. The company has stated it wants to be the first to bring an electric full-size pickup to the US market later this year. Lordstown’s value proposition is based on reduced total costs of ownership compared to traditional alternatives, especially when taking Federal EV tax credits into consideration.
That’s all well and good, but Lordstown’s ambitious plan has run into several headwinds over the past few months, and now looks like it will be increasingly hard to execute. A fact which hasn’t gone unnoticed by Deutsche Bank’s Emmanuel Rosner.
“While the market opportunity is large and Lordstown’s truck received decent initial interest from potential fleet customers, we see considerable uncertainty ahead,” the analyst said. “In the near-term, the company has encountered large operational and supply chain challenges and material cost overruns in its aggressive ramp up towards production, and is now in urgent need of capital.”
For the reasons above, Lordstown significantly lowered its production estimates for the year, and at the same time, increased the forecast for operating expenses.
But Rosner thinks that even if it does manage to source the much-needed capital, it will still face stiff competition from the big boys, such as Ford’s new F-150 Lightning, which could boast a “lower price point, more attractive TCO (total cost of ownership), and superior service network.”
And say the demand is there after all, given the elevated costs and higher-than-anticipated capital expenditures, the business may stay unprofitable “for longer than initially contemplated.”
Taking all this into account, Rosner rates RIDE a Hold along with an $8 price target. The implication for investors? A 23% drop from current levels. (To watch Rosner’s track record, click here)
Overall, Wall Street appears to agree with Rosner that caution is required here. The analyst consensus on this stock is a Hold, based on 7 ratings that include 1 Buy, 4 Holds, and 2 Sells. The general view is that the shares are overvalued; going by the $9.57 average price target, the stock will shed 8% from current levels. (See RIDE stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
