Beleagured Lordstown Motors May Be Showing Green Shoots, But Use Caution

I'm not usually interested in beaten-down companies, especially those whose injuries are largely self-inflicted, but Lordstown Motors (NASDAQ: RIDE), which caused its own stumbles, may be showing signs of life. 

The electric vehicle maker went public via a SPAC in August, 2020. The stock traded in a somewhat erratic fashion, with wide price swings, hitting resistance below $32 before beginning a long pullback in February.

Shares are down 31.78% in the past three months, and down 65.75% year-to-date.

However, in the past month, the stock is up 31.36, boosted by the August announcement that the beleaguered company named auto-industry veteran Daniel Ninivaggi as its new CEO. Ninivaggi replaces founder Steve Burns, who resigned in June.

Often a new CEO is a catalyst for a company's turnaround. That's certainly what investors in Lordstown, including backer General Motors, are hoping for.

Burns and chief financial officer Julio Rodriguez resigned on the heels of allegations that company executives lied about preorders for electric pickup trucks.

Just a few weeks earlier, Lordstown said it needed additional funding to produce the truck as planned. The firm's auditor also said the company may run out of funds.

When Ninivaggi's appointment was announced on August 26, the stock rallied 17.79%, in trading volume 1,118% heavier than normal.

Other EV Makers Overextended Themselves

EV companies, while heavily hyped, are showing signs of trouble. For example, some factories in China are shuttered, as companies ran short of cash needed to fund production. Sound familiar?

The situation is reminiscent of the excitement surrounding solar stocks in 2005 and 2006. The companies fell along with the broad-market crash that began in late 2007, but some, such as First Solar and SunPower, have yet to regain their late 2007 or early 2008 highs.

Lordstown is a heavily shorted stock. According to MarketBeat data, the short percentage of float is 28.23%. That's pretty high, and could be a signal that the bears may have to scurry for cover soon, after being correct for quite some time.

With the stock continuing to trade in an erratic fashion, it's difficult to characterize the current structure. However, there is perhaps a glimmer of hope in the stock's ability - so far - to hold above its August 19 low of $4.77.

So what else could constitute a catalyst for a turnaround?

In July, the company said asset manager Yorkville Advisors would buy $400 million in shares over three years. Investors sent the stock briefly higher on news of the deal, which could provide the funding for vehicle production.

Yorkville agreed to purchase shares for no less than $7.48 apiece, a 10% premium over where shares were trading Wednesday.

Endurance Finally Rolling Out 

Although General Motors' stake in the company is often mentioned in reports, the automaker owns just 5% of the company. The EV maker planned to manufacture its Endurance pickup trucks in a former GM plant in Lordstown, Ohio, beginning in the second half of this year.

The company recently said the Endurance, with a price tag of $50,000, would go into production this month.

There's plenty of competition, though. Ford's F-150 Lightning is in production. Rivian, which boasts Ford as an investor, postponed its truck rollout but that's also going into production, with more models expected to be on the market early next year. Tesla's CyberTruck, priced at $40,000 for the lowest-end models, is also on deck for 2021.

Make no mistake: Although Lordstown is showing a few tiny green shoots, there's a long way to go before this is a viable investment. I understand it's very tempting to get in early. If that's your feeling, then take a flier on a small number of shares or with a small percentage of your investment capital, and be prepared to write it off. Think of it like that trip to Vegas when you toss a $20 on the roulette wheel at Caesar's, just for fun.