Is Electric Truck Startup Lordstown Motors a Good Investment?

June 23, 2021 by Jerry Hirsch, @Jerryhirsch

While there are encouraging developments at electric pickup truck startup Lordstown Motors, Wall Street is still flying the caution flag for the stock.

Morgan Stanley Research analyst Adam Jonas attended the company’s briefing this week and here is his assessment.

The big theme is that Lordstown needs capital to ramp up production. Earlier this month, the company disclosed that Chief Executive Steve Burns, and Julio Rodriguez, its chief financial officer, have resigned. It also said it might not have enough cash to stay in business.

Lordstown’s board named lead independent director Angela Strand executive chairwoman. Strand will oversee the organization’s transition until a permanent chief executive is hired. It named Becky Roof as interim chief financial officer.

Jonas said in a report for investors that Strand “is working to gain back confidence from investors, analysts and broader stakeholders. This is critical as the company moves forward in their pursuit of additional funding that could come via a number of different channels including, according to the company, strategic sources.”

She outlined the company’s significant positives, including the value of the plant, the flexibility of the assets, and how the company is on track for a limited start of production in September.

Jonas took a ride in the company’s Endurance pickup truck.

Having ridden in both the Endurance Beta (on paved surface) as well as a ‘military-style prototype (in the mud), the vehicle performed well and we noted its handling characteristics…. The military-style prototype handled all types of terrain and performed well enough to get any mudding enthusiast excited. We note that it was stated that the Betas did not contain all the software systems that would be present in a production vehicle, so there is potential for even more improvement in the driving experience,” he said.

He also toured the factory, which is big with much room for expansion.

“While some critical tooling is yet to be put in place… we were encouraged to see certain production elements in place and ready to go. Again worth noting, the plant is huge. While that may be an obvious statement, it’s worth consideration. At its peak, this plant produced over 400,000 Chevy Cruzes in a year. That leaves a lot of room for a company that was only planning to produce 107,00k units of the Endurance by 2024,” Jonas said.

Jonas expressed continuing concern about Lordstown Motors’ plan n to locate motors inside the hubs of the Endurance pickup truck. He noted that the hub motor line and full battery pack line are still to be installed at the factory.

“We reiterate our view that the value of RIDE (Lordstown’s ticker symbol) and the company’s ability to secure funding and remain a going concern may, among a range of scenarios, require significantly altering, if not outright abandoning, its current vehicle propulsion architecture. We note that RIDE management have not commented on any plans to follow a different product strategy at the plant,” Jonas said.

However the company displayed the hub motors on the tour and stated the tooling would be at the plant in the next few weeks and ready for use in August, he said.

The analyst observed how happy people were to be working at Lordstown and are pushing for its success because the region has lost a significant amount of manufacturing jobs after General Motors closed the factory.

Lordstown’s executive teams see both the value and flexibility of the former GM plant as a key asset. The value to a prospective investor or strategic partner may be measured through ways such as time-to-market, access to labor, permitting, incentives and other factors, Jonas said.

The bottom line: Is this a good investment?

“While we largely note constructive takeaways from the event, we still express the same concerns as before regarding liquidity, path to scale and especially the commercialization of the in-hub motors. With the company still searching for additional capital, coupled with our fundamental concerns, we see a wide range of volatile outcomes and remain without a rating or price target on RIDE,” Jonas said.

The shares are trading at about $11, down from a high of $30.75 in February

Jerry Hirsch June 22, 2021
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