Lordstown Motors Stock Spikes as Fed Pauses Rate Hikes

Lordstown Motors stock (NYSE: RIDE) spiked by over 33% yesterday amid a broad-based rally in beaten-down growth stocks after the Fed paused its rate hikes at the June meeting.

That said, despite the recent rally, RIDE stock is down 75% for the year even as global EV (electric vehicle) giant Tesla has more than doubled this year.

Lordstown Motors went public through a SPAC (special purpose acquisition company) merger which has been the preferred listing model for companies in the green economy. The stock has been sliding for almost three years now – led by both weak macros as well as company-specific factors.

What’s been happening with Lordstown Motors?

Last month, Lordstown Motors opted for a reverse stock split. The Nasdaq listing rules mandate that stocks should have a closing price in excess of $1 for 30 consecutive business days.

If a stock is not in compliance with the listing rules it gets a delisting warning from the exchange.

Apart from Lordstown Motors, Arrival, Canoo, and Nikola also received a delisting notice from the exchange as their stock price plummeted below $1.

Meanwhile, in Lordstown’s case, the reverse stock split would not only help with meeting the minimum exchange listing requirements – but in the company’s view, it would also help proceed with the funding deal with Foxconn Motors.

RIDE has sued Foxconn

While announcing the reverse stock split, Lordstown Motors said, “If the reverse split causes the Class A common stock price to remain above $1.00 per share for 10 consecutive trading days and Nasdaq notifies the Company that the Bid Price Requirement has been satisfied, that may satisfy Foxconn’s (incorrect) interpretation of the closing condition and cause Foxconn to close the transaction.”

RIDE is contemplating suing Foxconn over the $47 million funding deal.

For the background, Lordstown Motors sold the Lordstown plant to Foxconn which now makes vehicles for it under contract. RIDE struggled with producing the Endurance pickup and was also accused by Hindenburg Research of inflation its order book and overhyping its manufacturing capabilities.

Last year, Foxconn also agreed to buy a stake in Lordstown Motors -something it is now backing out from.

Lordstown Motors sells the Endurance pickup

RIDE sells the Endurance pickup. The pickup segment is among the most profitable segment for automakers. For decades, the market has been dominated by Ford’s F-150 which has been North America’s best-selling pick-up for decades.

Last year, Ford also launched the all-electric version of the F-150. Rivian also sells the R1T pickup and along with the R1S SUV, it expects to produce 50,000 vehicles this year.

Tesla (NYSE: TSLA) is also set to begin the deliveries of its pick model Cybertruck later this year and Musk believes that at scale the company can deliver half a million of these annually.

Tesla continues to build its lead in the EV industry

TSLA expects to produce 1.8 million EVs in 2023 and has built its lead in the EV industry even as China’s BYD has emerged as a tough competitor in China.

Legacy automakers have also ramped up production and Ford expects its annualized EV production to rise to 600,000 by the end of 2023 and 2 million by the end of 2026. General Motors, which Like Ford has partnered with Tesla to share its Superchargers, expects its EV capacity to rise to 1 million by 2025.

That said, EV operations of legacy automakers are posting massive losses and Ford expects its EV business – rechristened the Model e – to lose $3 billion this year.

While General Motors hasn’t quantified the losses it expects its EV business to turn profitable only in 2025.

Lordstown has warned of bankruptcy

Things have been even bleak for startup EV companies that don’t have the luxury of profitable ICE (internal combustion engine) business to fund the EV losses.

EV startups are burning a lot of cash and need a continuous supply of fresh capital to bridge the gap. Last month, Lucid Motors announced a $3 billion stock sale which was preceded by a $1.5 billion stock sale late last year also.

Rivian also raised $1.3 billion through a convertible issue earlier this year. Arrival has also raised capital in order to fund its operations. It eventually opted for a second SPAC merger to raise more funds.

Lordstown Motors has incidentally warned of bankruptcy if Foxconn walks out of the funding deal.

Foxconn sees a big opportunity in EVs

Foxconn otherwise sees a big opportunity in EV contract manufacturing and last year unveiled its EV models.

It has partnered with Fisker to produce its Ocean SUV and also formed a joint venture with Saudi Arabia to produce EVs in the kingdom.

The company also aspires to build cars for Tesla one day. However, when it comes to the Lordstown investment, the company seems to be having second thoughts.

As for Lordstown Motors, while the stock has risen amid the recent rally in beaten-down shares, most analysts remain apprehensive of the stock given its precarious financial condition and the dismal execution record so far.