Once one of the hottest electric vehicle stocks around, Lordstown Motors (NASDAQ:RIDE) has experienced a sharp price decline over the past two years. Trading at prices topping $30 per share in 2021, you can buy RIDE stock today for around $1 per share.
So, with this sharp price drop, risk/return is highly favorable now, right? Not so fast. Just because Lordstown shares are far cheaper now than during the height of the EV stock bubble, don’t assume that it has become an asymmetric wager.
Sure, this early-stage EV maker has made a lot more progress reaching the production stage than other EV companies whose shares trade at penny stock levels, like Mullen Automotive (NASDAQ:MULN).
However, based on its financials, not to mention the latest developments, the company’s future viability is highly uncertain. With this, speculating in RIDE seems like a foolish move.
| RIDE | Lordstown Motors | $0.99 |
RIDE Stock and Its Most Recent Challenge
In 2022, it seemed as if Lordstown Motors was finally putting past headwinds behind it. Commencing production of its Endurance electric pickup truck last September, by the end of November the company was starting to make its first deliveries.
Even as its production total last year (500 vehicles) fell far short of original projections (32,000), at least one could argue things were moving in the right direction. However, a recent event has put further progress on hold.
On Feb. 23, Lordstown announced that it was pausing production and deliveries. This was due to an electrical connection issue reported in some of its Endurance vehicles.
Sure, quality-related production pauses are not uncommon. After all, even Ford (NYSE:F) recently has been forced to pause EV truck production due to a quality-related issue.
But while a temporary production pause is a mere hiccup for established, well-capitalized Ford, it is a much more material event for this fledgling, cash-strapped startup.
With this, it makes sense that RIDE stock fell by around 11.4% on the day of this production pause news. If that’s not bad enough, further big declines may be just around the corner.
En Route to Significantly Lower Prices
Lordstown Motors will report its latest quarterly results pre-market on March 6. Management will also provide investors with an outlook update.
Although Lordstown has previously disclosed that it expects its production ramp-up to happen slowly, in light of the production pause, it’s possible that the company’s outlook for the coming quarter falls short of current expectations.
Last quarter, Lordstown also guided that it would have between $150 million and $165 million in cash and short-term investments on hand by year’s end. If losses come in higher-than-expected for the quarter, and Lordstown’s cash position ends up being below this amount, this too could have a negative impact on RIDE stock.
Higher-than-expected losses could also underscore how this company needs to continue securing additional funding, until it scales up to profitability. Lordstown is currently leaning on the sale of newly-issued common and preferred stock to its strategic partner, Hon Hai Technology Group, better known as Foxconn, for financing.
Already knocked lower by past shareholder dilution, additional dilutive financing will undoubtedly send RIDE shares down to significantly lower prices compared to current levels. Worse yet, Lordstown may soon be unable to secure more funding from Foxconn, or from other sources.
Bottom Line
Given its slow start to vehicle production, and its aforementioned production hiccup, it’s quite possible that Foxconn, realizing that this EV endeavor has a slim chance of becoming successful/profitable, may decide to pull the plug on additional investments.
Other possible funding sources for Lordstown, such as directly from the market (via an at-the-market offering), may fail to provide adequate funds to finance a further production scale-up. If this scenario ends up happening, and the company folds, expect a total wipeout for RIDE.
Put simply, this is far from being a situation where upside potential vastly exceeds downside risk. There is a strong chance of a total or near-total loss, with little to suggest shares will ultimately move back to higher prices.
Now that you are well aware of the bleak prospects with RIDE stock, there’s only one smart choice to make: avoid it at all costs.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.