Reality Is a Cruel Mistress for Aspirational Lordstown Motors
In my last write-up for Lordstown Motors (NASDAQ:RIDE) stock, I suggested that the company may be overvalued based on economic metrics.
Specifically, unemployment trends for the construction industry were more negative than the national trend, which suggested that commercial fleet owners would not be willing to open their wallets.
Naturally, this represented a headwind for RIDE stock, which is tied to electric trucks.
Unlike some of my bearish-toned articles, I don’t regret my take on Lordstown Motors. About the only thing I do regret was that I wasn’t much more forceful in my argument.
I really should have stated publicly what I thought personally, which was that RIDE stock had the appearance of a paper tiger: innovative on paper, bound to fail on the ground.
Well, that’s exactly what happened. RIDE stock plummeted nearly 37% since the time my article went live, . Interestingly, though, I was a fool — not a motley fool but just a fool — between Dec. 10 and Feb. 11. In that period, RIDE jumped 69% but that victory was short-lived.
Unfortunately, as the New York Times detailed earlier this month, the bottom dropped out of Lordstown Motors and other electric vehicle companies. In short, Lordstown made big promises of rolling out e-trucks and revolutionizing the automotive industry. Instead, RIDE stock appears to be on life support.
“In February, a prototype it was testing in Michigan caught fire and burned so long and so hot that there was nothing left of the rubber tires,” according to the Times. “Then, in April, another prototype dropped out of a 280-mile off-road race in Baja California after just 40 miles, performing worse than a 1980s vintage Toyota converted to run on a Nissan Leaf motor and battery.”
It’s not looking good for Lordstown and the situation will probably worsen.
Fantasy Meets Reality for RIDE Stock
The world-renowned newspaper went on to describe other woes affecting Lordstown Motors’ reputation. First, it “hasn’t begun hiring the union workers it promised would assemble its trucks even as it recently listed openings for an executive chef and a fitness coach.”
Second, and the bigger whammy for RIDE stock, “Lordstown is also being investigated by the Securities and Exchange Commission, and its stock has tumbled from a high of about $30 last year to less than $8.”
To be fair, RIDE stock is set to open today north of $11 after enjoying a mercurial spike. While possibly indicative of a comeback rally, it doesn’t take away from the overwhelmingly bitter loss of more than 58% during the trailing six-month period.
Mainly, I believe the challenge facing RIDE stock is a familiar one: EVs in all their glory are not yet economically viable. Yes, electric trucks offer many innovations that their combustion-based counterparts can’t match.
When you factor in the lack of an environmental footprint relatively speaking, you can see why people were initially enamored with Lordstown, but the initial cost outlay of going electric is a major concern for fleet operators.
Beyond that, they have the lingering feeling of the unknown. Many auto experts recommend consumers stay away from the first-year models because later-year models have worked out the kinks, but as the Times stated, the kinks in this case are trucks catching on fire. When you combine the initial cost outlays with the real possibilities of catastrophic loss, you can see why fleet owners are hesitant.
Plus, alternative-fueled fleet vehicles don’t have a great track record. A case in point is Workhorse Group (NASDAQ:WKHS), which you can argue got hyped to oblivion.
Stay Far Away from Lordstown Motors
Still, isn’t that bump up recently in the RIDE stock price worth considering? If you’re looking to get out at the best rate possible, then yes, it’s worth considering. But as a prospective contrarian play, I’d look elsewhere.
You just need to look at other hyped EV stocks and their negatively trending ways. Investors, it seems, are recognizing that until EVs can overcome the high energy density of fossil fuels, they’ll have a bear of a time sparking an automotive paradigm shift. There’s a reason why even today, EVs represent a small fraction of global auto sales.
Plus, our own Mark Hake warned that Lordstown is going to need a capital raise sooner rather than later. If so, the narrative will become even uglier for RIDE stock. It was an interesting journey, but this is about as far as the bus will go.
On the date of publication, Josh Enomoto did not have (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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
