Lordstown Motors Stock Forecast: Where is RIDE Headed Next?
Can the electric vehicle startup fight its way into viability amid a jostling throng of SPACs?
Amid 2020 and 2021’s flurry of electric vehicle (EV) SPACs, Lordstown Motors (NASDAQ: RIDE) is currently at the cutting edge between bullish and bearish assessments of the whole EV sector. Today, Hindenburg Research published a report on Lordstown Motors purporting to expose a number of major problems with the startup and sending Lordstown’s stock value into a tailspin.
Counterbalancing this, Hindenburg is known to have a short position on Lordstown Motors and has similarly published negative allegations about other companies it has shorted in the past. Where is the balanced viewpoint for an investor in this case?
Lordstown Motors: The Bull Case on its Stock Forecast
Launched as a public stock in October 2020 by a merger with the DiamondPeak Holdings special purpose acquisition company or SPAC, Lordstown Motors entered the market with a notable advantage: its purchase of the Lordstown, Ohio Assembly Complex from General Motors (NYSE: GMC) in 2019.
Unlike competitors like Nikola Motor Company (NASDAQ: NKLA), which has barely started construction of its first facility on empty land, Lordstown owns an actual factory and, presumably, machinery, positioning it much closer to actual production and a potential first-mover advantage among recent EV startups.
General Motors also thought enough of the company to invest $75 million in it. While the amount is small, Lordstown was still able to effectively secure the endorsement of one of today’s major carmakers. In terms of valuation, its approximate equity value of $1.6 billion at the time it went public could potentially be less inflated and more realistic than other startups.
As just one example, the Churchill Capital IV (NYSE: CCIV) hit an implied valuation of $60 billion for its merger partner, Lucid Motors, the day after their merger was announced. That effectively valued the small startup higher than Ford Motor Company’s (NYSE: F) $48.8 billion market cap. Lordstown’s much more conservative valuation appears more likely to have actual value behind it and to be less of a speculative bubble.
Lordstown Motors is headed by Steve Burns, founder and former CEO of Workhorse Group (NASDAQ: WKHS), which has actually produced functional vehicles. Its Lordstown Endurance electric pickup truck features motors in the wheels, providing product differentiation and a type of vehicle not exactly matched by any competitors’ offerings, current or near-future.
Committing to a concrete production schedule, Lordstown says it will enter an actual working example of the electric Endurance pickup in the April 17 San Felipe 250 cross-country race in Baja, California. It further says deliveries will start in the third quarter (Q3) of 2020. The ability or inability of Lordstown to meet these deadlines will give investors several data points in the near future for judging its competence at bringing a successful EV to market, rather than relying on indefinite promises.
The Bear Case for Lordstown’s Stock Forecast
On the bearish side of the equation, Hindenburg set Lordstown Motors’ stock on a downward slide today (March 12th) by accusing it of inflating or falsifying the number of orders it has for the Endurance pickup. The short seller alleges “the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy,” referring to Lordstown’s approximate 100,000 pre-orders.
In response, Lordstown points out it has always clearly stated the “orders” are not actual orders but completely non-binding pre-orders, used by many car companies both currently and in the past to measure interest.
Similarly, Hindenburg has zeroed in “a 14,000-truck deal from E Squared Energy, supposedly representing $735 million in sales,” pointing out that E Squared does not operate a fleet of vehicles.
While it is literally true the company does not operate a fleet of trucks, its CEO Tim Grosse told The Business Journal that E Squared buys “vehicles for municipalities and customers who don’t have large budgets to switch to EVs,” so the absence of a company fleet does not invalidate the pre-orders, since E Squared is simply acting as a middleman for third parties, many of them governmental.
Potentially more worrisome for investors than Hindenburg’s criticisms are the sheer number of EV startups in recent months. Lordstown Motors is one of many new launches in a crowded field, where the market will inevitably cause many startups to fail. According to an October 2020 report by Barron’s, eight EV startups had already gone public through SPAC mergers or would do so in the coming months in the USA alone, with at least two more in the process of going public in China.
In such a crowded field, Lordstown will have to function efficiently and produce a high-quality, attractive product to avoid fizzling out in the wake of a more successful competitor’s launch. It may indeed succeed, but that success remains an extremely risky unknown, as is the case for all the current EV startups.
Adding it Up: RIDE’S Stock Forecast in 2021
The current publicity struggle between Hindenburg’s accusations and Lordstown Motor’s denials highlights deep uncertainties in the EV startup market as a whole. Electric vehicle startups have sprung up like mushrooms over the past several years, with especially large numbers appearing in 2020.
A balanced view might consider the EV market is a promising new sector, backed by technological momentum and consumer sentiment, as Tesla’s (NASDAQ: TSLA) Teflon-like immunity to countless bear cases over the past few years demonstrates. Major profit opportunities exist but, as in any dynamic, emerging new market, most startups will fail.
Investment in any new EV company at this stage is a gamble. The market will winnow out most of today’s contenders, while a few will succeed and grow explosively. Investment in the sector is a shot in the dark, with a high risk of failure but a small chance of spectacular future returns.
With that said, Lordstown Motors still appears to be one of the better bets in the field. Its product is differentiated from most rivals, it possesses an actual production facility, General Motors sees enough potential to back it, and its schedule should produce concrete results in 2021, allowing a better judgment of whether it will succeed or fail than rivals specifying no actual production dates.
Any investment in an EV startup should be made only if the investor is willing to lose the money invested, but Lordstown appears to have comparatively better odds than most.
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