Electric vehicle (EV) stocks have battled against market conditions in 2021, possibly none more so than Lordstown Motors (RIDE). The cash-strapped electric truck startup has endured a torrid time, having made it known it lacked sufficient funds to bring its truck, the Endurance, to market. As a result, investors have driven away, and shares have shed 74% of their value since the turn of the year.
The company’s latest actions to address the cash issues were behind another violent drop.
Lordstown has agreed to sell its Ohio plant to Hon Hai Technology (Foxconn), in a deal worth $230 million. Foxconn will also purchase RIDE stock worth $50 million at a price of $6.8983 per share. As shares were trading at $8.79 a piece last Friday’s open, investors evidently baulked at the arrangement, sending shares down 35% over the past three trading sessions.
Foxconn will now develop the Endurance under contract manufacturing, which will bring it a step closer to becoming a contract manufacturer for EV makers. The company has already signed on the dotted line to be Fisker’s vehicle assembler and probably has an eye on the Apple Car opportunity – for whom it already supplies iPhones.
And for Lordstown? As RBC analyst Joseph Spak notes, the company could use the “much needed cash infusion.”
“To us,” the analyst went on to say, “Given our view that the near-term unit opportunity for RIDE may be limited owing to competition, the move to not be vertically integrated and shift to a less capital intensive model helps.” Near-term liquidity should also get a boost, as the shift “reduced fixed capex to a more variable piece price model.”
Spak thinks RIDE should have enough cash to get to mid-2022, based on the $280 million generated from this transaction and the equity line of credit (ELOC). Working with Foxconn and leveraging their supply chain is a “positive,” but at the end of the day, RIDE will “need to sell Endurance vehicles.” With “competitive challenges” coming from both legacy auto makers and other startups, the company could ultimately have a hard time doing so.
Nevertheless, the shift to the new business model merits a price target raise and the figure moves to $5 from the prior $1 target. Spak, therefore, expects the share price to stay rang-bound in the coming months, given the share price currently stands at $5.2. There’s no change to Spak’s Underperform (i.e., Sell) rating. (To watch Spak’s track record, click here)
Overall, the Street’s view on RIDE presents a strange conundrum. On the one hand, based on a single Buy rating, 3 Holds and 3 Sells, the stock has a Moderate Sell consensus rating. However, the average price target of $6.67 represents possible upside of nearly 28%. It will be interesting to see whether the analysts upgrade their ratings or reduce price targets over the coming months. (See Lordstown stock analysis)
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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.
