Look at a stock chart for Lordstown Motors (NASDAQ:RIDE), and it is clear investors have already sent RIDE stock to the market junkyard. However, with its super-low stock price, I can understand why some may have the urge to go contrarian on this floundering electric vehicle maker.
After all, it’s already at the bottom of the scrap heap. RIDE could, in theory, make an outsized move on just a modicum of good news. Unfortunately, while there is the possibility of a massive bounce-back for Lordstown, it’s unlikely.
The situation has already gone from bad to worse. The “worst-case scenario” may soon arrive. If this happens, common shareholders can expect further heavy losses, as I will explain in greater detail below.
| RIDE | Lordstown Motors | $0.81 |
It Keeps Getting Bumpier for RIDE Stock
In my last article on Lordstown Motors, I discussed the EV maker’s various longstanding and more recent challenges. These include underwhelming production progress, as well as a forced production pause that could not have come at a worse time.
It was unclear when the company would exit the production pause, which was because of reported electrical connection issues in some of its Endurance electric pickup trucks.
Today, this uncertainty persists, and it may have something to do with another recent discouraging development out of Lordstown. On March 6, CEO Edward Hightower disclosed that the company has lost money on each Endurance it has sold.
The company needs to bring in an additional strategic partner and raise substantial capital to move beyond recent hiccups. This news, revealed alongside Lordstown’s underwhelming quarterly results, resulted in yet another sharp downward move for RIDE stock.
It has been a bumpy ride for shares over the past six months, and it keeps getting bumpier. In fact, in the months ahead, this bumpy ride could morph into another massive move lower for the stock. Here’s how.
Running Out of Cash
As seen in Lordstown’s most recent financials, the company continues to burn rapidly through cash. Operating losses for the quarter ending Dec. 31, 2022 alone came in at $104.1 million. Full year operating losses totaled $387.3 million.
With just around $221.7 million in cash on hand, the company definitely needs to raise more money, even if it does not soon resume production of the Endurance. Estimated cash burn for Lordstown is likely to come in at $51.7 million and $71.7 million, based on the latest guidance update.
Hon Hai Technology Group, aka Foxconn, Lordstown’s existing partner, has already committed to providing additional funding, via the purchase of newly issued common and preferred shares of RIDE stock. However, the rest of this commitment only adds up to $117.3 million.
This, plus the fact that Foxconn is only involved with Lordstown’s non-Endurance vehicles, is why the company needs another strategic partner.
Major automakers have already moved ahead with their EV endeavors. It’s doubtful there is a long list of prospective suitors interested in teaming up. The current scramble for funding may prove fruitless, marking the end of the road for RIDE.
The Takeaway
Ford (NYSE:F) and General Motors (NYSE:GM) are doing just fine with their respective moves into EVs. Lordstown brings little to the table with its “also-ran” EV truck offering. Foxconn probably isn’t interested in providing funding beyond its current commitment.
Sure, other funding sources may still be available to the company. For instance, Lordstown could strike a deal similar to the one EV maker Arrival (NASDAQ:ARVL) has executed with a hedge fund.
However, the Arrival deal comes with some very unfavorable terms. Going with this option would be bad news for existing RIDE investors. Absent any deal, Lordstown will probably run out of cash and fold.
In short, as before, RIDE stock continues to offer the prospect of either heavy losses, or a total loss, for investors buying today. With this, “stay away” is the only takeaway.
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.