Lordstown Motors: Buy the Dip or Pump the Brakes?

2021 is still pretty young, but already it's given investors in Lordstown Motors (RIDE) quite the thrill ride.

From Jan. 1 to Feb. 11, that ride was a nearly vertical, 50%-plus blastoff from $20 a share to nearly $31. From Feb. 12 to -- well ... to today -- it's been nearly as vertical stomach-turning tumble downwards, culminating in a huge selloff in Friday trading after Hindenburg Research released a "short report" attacking Lordstown stock. Before we address that report, though, let's throw this car into reverse and remind ourselves of why investors liked Lordstown in the first place.

To help with this, we turn to Wolfe Research analyst Rod Lache, who recently upgraded RIDE to Peer Perform, while attaching a $27 price target. (To watch Lache track record, click here)

As Lache explained, he was initially skeptical of Lordstown's ability to compete in the nascent market for electric pickup trucks, which both Ford and General Motors (and Tesla) are expected to enter. However, on closer examination, the analyst realized that EVs' "much lower operating costs," and "near purchase price parity" with traditional gas-fueled vehicles meant that "commercial demand for electric pickups appears to be larger than we anticipated."

To Lache's amazement, Lordstown announced that it had already amassed more than "indications of interest" in buying more than 100,000 of its electric trucks from commercial fleet operators alone. Combined with the prospect of selling even more vehicles to the federal government (because President Biden wants replace all 650,000 U.S. government vehicles with EVs), and Lordstown's own plans to expand into electric vans, the analyst concluded that this stock might be worth looking at after all.

But Hindenberg begs to differ.

Driving full-speed into the central leg supporting Wolfe's support of the stock, Hindenburg alleged today that, according to "conversations with former employees, business partners and an extensive document review show," the "100,000" pre-orders that Lordstown has touted are in fact  "largely fictitious."

Digging into the details of Lordstown's prospective customers, Hindenburg discovered that one customer (a would-be buyer of 14,000 Lordstown trucks) runs its business out of a small apartment in Texas and currently lacks even one truck to its name. A second customer is just "a 2-person startup that operates out of a Regus virtual office with a mailing address at a UPS Store." And a third customer, upon being tracked down and queried about its seriousness about buying Lordstown's truck, equivocated: "The letters of interest are non-binding. It’s not like you’d obligate yourself to a pre-order..."! 

And if Lordstown's truck-buyers are largely illusory, so too may be the trucks they want to buy. "Lordstown is an electric vehicle SPAC with no revenue and no sellable product," declares Hindenburg. Far from having a finished product to sell, after its "first street road test resulted in the vehicle bursting into flames 10 minutes into the test drive," Lordstown is now in the middle of a redesign that has set back production to "3-4 years away."

Ultimately, the short seller concludes that Lordstown is a "mirage" -- and unlikely to "perform" anywhere near as well as its "peers."

Overall, Wall Street is evenly split on this stock. RIDE shares have received 1 Buy, 1 Hold, and 1 Sell rating over the past 3 months, making the analyst consensus view a Hold. However, shares are priced at $14.78, and the average price target of $26.67 suggests room for ~80% growth from that level. (See RIDE stock analysis on TipRanks

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst and the short-seller. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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