Lordstown’s Test of Endurance

In a move that cratered its stock price in early trading Tuesday morning, Lordstown Motors announced a 1-for-15 reverse stock split as its share price fell 12.7%. in early trading. That said, at 26¢ a share, its prices aren’t exactly robust. At peak, its stock fetched $31.80 a share.

The split becomes effective tomorrow, May 24. Currently, there are roughly 243 million shares outstanding for Lordstown. After the reverse split, there will be about 16 million. The company trades on NASDAQ as RIDE.

Typically, stock splits increase the number of outstanding shares, and makes the stock more affordable. But this is hardly largesse; it’s typically a sign of optimism by company management, as they expect their share price to continue to rise.

A reverse stock split, as you might imagine, has the opposite impact on investor sentiment. Usually, reverse splits occur after a time of difficulty. That’s certainly true of Lordstown Motors as its stock fell 86% during the last 12 months as the company’s prospects continue to dim.

Lordstown Motors once bragged about lining up thousands of advance fleet orders, but has only built 56 pickup trucks since production began. The firm had about $165 million in cash at the end of April, having burned through $46 million during the first quarter to run operations. Wall Street predicts that in order to increase output during the rest of the year, the company will require more than $200 million.

A promising start

Launched in 2018, Lordstown Motors acquired a moribund General Motors assembly plant in Lordstown, Ohio, with plans to produce a battery-electric pickup truck dubbed the Endurance. The startup entered a SPAC-style reverse merger in October 2020 that allowed it to list on the NASDAQ exchange. Soon after, the company’s stock peaked.

Things took a turn for the worse as the company’s long-term endurance was questioned in March 2021. That’s when Hindenburg Research accused Lordstown Motors of faking or overstating claims that it has advance orders for 100,000 of its electric pickups

“Lordstown is an electric vehicle SPAC with no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities,” Hindenburg said, while referring to Lordstown founder and CEO Steve Burns as a “con man.”

Since then, it was revealed that Hindenburg was right; many, if not all, of the automaker’s sales claims were in doubt. This not only led to an investigation by the U.S. Securities and Exchange Commission that the automaker misled investors, it resulted in the resignation of Lordstown’s Chief Executive Officer Steve Burns and its Chief Financial Officer Julio Rodriguez in June 2021. The following day, the company claimed that it had 18 months of “confirmed” truck orders, only to recant it the day after. Within a month, federal prosecutors open an investigation into the battery-electric truck maker.

But hope springs eternal.

Even the threat of SEC action or federal indictments didn’t prevent New Jersey-based hedge fund Yorkville Advisors Global LP from investing $400 million a little more than a week later, nor from Taiwan-based iPhone manufacturer Foxconn from paying $230 million for most of Lordstown Motors Ohio plant in October 2021. The EV maker retained several operations, however, including hub motor and battery pack assembly lines.

It was a lifeline, one that saw the company through to the start of production in September 2022. Within a month, Foxconn agreed to purchase $170 million in common stock and newly-created preferred shares even as the automaker continued to burn through cash. It ended 2022 with $221.7 million in hand but lost more than $100 million during the fourth quarter as it struggles to ramp up production of its Endurance pickup.

The wheels come off

But things soured earlier this month, as Foxconn reportedly decided to back out of the $170 million investment deal after learning that Lordstown was informed its stock could be delisted from the NASDAQ exchange. Foxconn provided the initial $52.7 million last year, but seems reluctant to provide the remainder. The intended deadline for finishing a joint plan was May 7.

“Foxconn’s actions are completely unwarranted. Their course of conduct has resulted in material — and what is becoming irreparable — harm to the company,” Lordstown said in a statement earlier this month.

But the delisting notice seemed to trigger the delay in finishing the agreement. 

Depending on how shares trade in the upcoming weeks, the reverse split should increase the stock’s price above $4. That will be enough to satisfy the Nasdaq’s listing requirements, which includes a share price worth more than $1.