Shares of up-and-coming electric vehicle company Lordstown Motors (NASDAQ:RIDE) stock have tanked 40% this month.
Short-seller Hindenburg Research is on its case again, alleging that the company has greatly exaggerated the pre-orders for its Endurance electric pickup truck.
The SEC has now decided to investigate the matter. Subsequently, several firms and investors have filed lawsuits against the company.
With six months to go before commercial production, RIDE stock is in a major spot of bother.
Lordstown is an EV company that plans to commercialize its flagship all-electric Endurance pickup truck. It comes with a price tag of $50,000, and production should start in September this year if everything goes smoothly. However, the Hindenburg report, the SEC’s follow-up and the market’s competitive pressures have weighed down its price.
It’s had it rough since going public, with special purpose acquisition company (SPAC) DiamondPeak Holding dropping 40% of its value in the past three months.
Things were on the right track for RIDE stock with greater production and sales visibility. However, the questions raised by Hindenburg are concerning, and the SEC’s involvement only complicates things.
The Hindenburg Report
Hindenburg Research shocked EV investors last year with a demoralizing report on Nikola (NASDAQ:NKLA). It has now turned its attention towards another promising EV startup in Lordstown Motors.
The short-seller accuses the company of fabricating a considerable portion of its 100,000 pre-orders. It states that several entities had made pre-orders in helping Lordstown inflate that number.
For example, one fleet order of 1,000 trucks came from a small startup working from a virtual office. Hindenburg states that the owner didn’t intend on following up on the order, categorizing it as a marketing relationship.
Moreover, these orders are all non-binding and involve just a $100 fee. There is nothing that stops clients from not following up on their orders. Additionally, several firms and investors have filed lawsuits against the company.
Lordstown CEO Steve Burns had a rather unconvincing response to the matter.
“We don’t have a product yet, so by definition, you can’t have orders,” Burns said. “I don’t think anybody thought we had actual orders.”
At this point, it appears that Hindenburg is on to something. Hindenburg also posted pictures of the company’s Endurance truck breaking down in its commercial filming last year. One of these pictures shows the Endurance on a tow truck.
Other Risks
Apart from its legal troubles, the competition is heating up in its industry.
Ford (NYSE:F) is developing its electric truck called the F-150 EV, currently in final testing. GMC (NYSE:GM) also revealed its 2024 Hummer EV truck. Additionally, several other automotive companies are redesigning their facilities in catering to the rising demand for EVs.
Lordstown’s ability to develop its cars at a scale is a significant problem. It’s still redesigning its Ohio facility to suit its requirements and only expects to reach full capacity by the conclusion of 2022. Right now, this looks as if it may lead to customers bailing on their pre-orders.
The Bottom Line on RIDE Stock
RIDE stock has taken a battering in the past three months despite improved production and sales visibility. Hindenburg has had a history of uncovering foul play in various companies for their readers.
Moreover, with the SEC following-up, it appears that there is something fishy with Lordstown pre-orders. On top of that, the rising competition and the company’s inability to scale are two significant concerns at this point.
Therefore, I’m bearish on RIDE stock at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article