IIn case you missed it, starting a struggling electric truck Lordstown Engines (NASDAQ: RIDE) said on Aug. 11 that he lost $ 108 million in the second quarter and had $ 366 million in cash left at the end of June.
But those numbers were perhaps the least interesting news in his earnings report.
Lordstown has been in shock since the abrupt departure of its CEO and CFO in June, following an investigation into allegations that they very exaggerated customer interest in the company’s next electric pickup truck. Now it looks like the people they left behind are scrambling to find a way to turn what is left of Lordstown into a viable business.
Here are three things I took away from the Company’s Results Report that make me think their odds of success are not good – and that EV investors looking for a good deal might be wise to forward the battered actions of Lordstown.
It now seems likely that Lordstown’s Endurance electric pickup will be beaten in the market by the (cheaper) Ford F-150 Lightning. Image source: Lordstown Motors.
Lordstown’s truck is still far from real production
“We are launching Endurance with a cautious production ramp given a challenging industry and supply chain landscape,” said Executive Chairman Angela Strand. “We are on track to begin limited production in late September and through the fourth quarter and complete vehicle validation and regulatory approvals in December and January.”
Lordstown has been saying for months that Endurance production will begin in September. But “production start” is a technical term in the automotive industry, which implies the start of production of vehicles. which can be sold to customers.
As Strand explained, that’s not it.
“This will be followed by deployments with first selected customers in the first quarter before commercial deliveries at the start of the second quarter,” she said, “with ramping up in the second half of next year.”
In other words, the first trucks which are in fact for sale will not be delivered until the second quarter of 2022. What happens by then is aptly called “pre-production,” testing the assembly line and delivering the first trucks to potential fleet customers to assess, which Lordstown was supposed to have done in the past few months.
To take away: Endurance is not on time. Since part of the business case for Lordstown was that the company would beat the major automakers in the market, and given that Ford Motor Company (NYSE: F) will have its cheaper, better-equipped electric F-150 Lightning by Q2 and target Lordstown’s hoped-for commercial fleet customers squarely, that’s a big deal for Lordstown.
Lordstown scrambles to find a plan B
You could argue that the good news is that the remaining Strand and Lordstown management team understand the problem: demand for Endurance is unlikely to be, shall we say, robust. Remember, Lordstown admitted in a regulatory filing in June that he had “no purchase orders or customer commitments” for Endurance. Nothing.
The bad news is that there is no plan B in place yet. But one option, which the company is exploring, is to try to convince others to lease part of the company’s factory, a sprawling facility that was once a large General Motors (NYSE: GM) plant. Alternatively, Strand said the company could build electric vehicles from other automakers under contract.
“We have seen the multiple opportunities that our manufacturing facilities in our large surrounding campus present to other companies seeking out-of-the-box manufacturing capabilities for their products,” Strand said. “It’s a big market.”
Strand said Lordstown was only using about 30% of the facility and had had “serious discussions” with “several” anonymous potential partners about leasing or leasing unused sections of the facility. factory and vehicle construction contract.
“This is a critical strategic backbone for us, a move that we believe will lead to significant new revenue opportunities for Lordstown,” Strand said.
I would rather call it a Hail Mary. While I think it is possible that the State of Ohio is willing to offer incentives to anyone who wants to build electric vehicles at the Lordstown plant, I think it is far from that question – would be willing to put its future product in the hands of a company with Lordstown’s questionable track record to date.
Investors aren’t breaking down the door to give Lordstown more money
We know Lordstown needs more money. The company warned, probably at the insistence of its auditors, in a regulatory filing in June that it maybe not enough money to stay in business for another year. This warning, a “going concern” notice from auditors, was – or at least should have been – a wake-up call to auto investors.
Lordstown still has cash, around $ 366 million as of June 30. But it doesn’t look like deep-pocketed investors are making their way to the company’s door. Lordstown said last month that Yorkville Advisors, a firm specializing in struggling start-ups, had agreed to buy up to $ 400 million in Lordstown stock over the next few years at below-market prices.
On the one hand, this saves Lordstown from trying to make a proper side offer. On the other hand, Yorktown is not doing so as it plans to take a stake in Lordstown. He is simply considering reselling the stock quickly at the market price, thereby securing a gain.
It’s the kind of deal you make when you have no other options. But Strand did his best to suggest otherwise, without actually saying it.
“The agreement [with Yorktown] was the first of what we believe to be several steps to ensure the business has the financing it needs to be successful in profitability, ”she said. “We are now exploring a variety of other financing options, including non-dilutive private strategic investments and debt.”
That’s almost verbatim what a company spokesperson told me last month, which suggests to me that Lordstown hasn’t made any headway on the fundraising front. This in turn suggests that if Lordstown can obtain financing, it is unlikely to be on favorable terms.
The result: it is now a rescue operation
Let’s sum up.
- Lordstown had hoped to beat Ford in the market, but that’s not the case now – and Ford is the long-time leader in the commercial vehicle segment that Lordstown hopes to enter.
- Lordstown executives are hoping someone with deep pockets will pay the company to do … something.
- Lordstown is short of cash and no good financing options are visible at this time.
My bottom line: It is now a recovery operation, and recovery operations do not deserve business growth multiples.
To be clear, I think Strand and Lordstown chairman Rich Schmidt is doing his best to clean up the mess left by company founder Steve Burns and CFO Julio Rodriguez. And we have to note that Lordstown has things of value, namely a factory, tools and money in the bank.
It is still possible that there is a business here. But I don’t think it’s a big company, and it will almost certainly need additional funding that could have a dilutive effect on current shareholders. This makes me think the Lordstown stock is likely to drop even more from recent levels. Negotiate cautiously.
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