One growth stock that has taken a big hit recently is electric vehicle manufacturer Lordstown Motors (NASDAQ: RIDE). Back in February, the stock was trading above $30. Today, however, RIDE shares are changing hands for $8.50.
Is this share price pullback a buying opportunity for me? Let’s take a look at the investment case for Lordstown stock.
Lordstown Motors: business description
Lordstown Motors is an American electric vehicle manufacturer in the process of developing an all-electric pickup truck. Last year, the company went public via a special-purpose acquisition company (SPAC) deal. Currently, it has a market cap of about $1.4bn.
Lordstown’s flagship vehicle is its ‘Endurance’ model. This EV, which is set to go into production later in 2021, looks quite similar to Ford’s F-150 pickup truck (which has been the best-selling vehicle in the US for a long time).
Previously, Lordstown had advised that it was expecting to produce around 2,200 Endurance vehicles this year. However, yesterday, the company slashed its production guidance for the year and said that it will only be able to produce about half this figure, at best. Lordstown blamed a lack of funding for the cut in guidance.
The bull case
There are some things to like about Lordstown, from an investment point of view.
For starters, the company operates in a growth industry. According to Allied Market Research, the global EV market is set to be worth around $800bn by 2027, up from $160bn in 2019. This industry growth should favour Lordstown.
Secondly, there appears to be some interest in the Endurance from buyers. Earlier in the year, the company said that it had received over 100,000 non-binding orders for its EV from commercial fleets.
The bear case
I have some reservations about investing in Lordstown Motors stock, however.
One is in relation to a recent report on the stock from short seller Hindenburg Research. In its report, Hindenburg made a number of worrying claims, including that:
Lordstown’s orders are “largely fictitious”. The short seller claims to have spoken to both former employees of Lordstown and its business partners and believes that the 100,000 orders is not an accurate figure. For example, it says that one order of 14,000 trucks, representing $735m in sales, was from a small residential apartment in Texas that doesn’t even operate a vehicle fleet.
In January of this year, Lordstown’s first street road test resulted in the vehicle bursting into flames 10 minutes into the test drive.
One former employee said that Lordstown is experiencing delays and that production could be years away.
Another concern is in relation to Lordstown’s short interest. Currently, this is around 33%. This indicates that short sellers (investors who are betting against the stock) are aggressively targeting RIDE stock right now.
Finally, I think Lordstown is going to have some real competition on its hands in the future. As I mentioned earlier, Ford’s F-150 has been the best selling vehicle in the US for years now. Recently, Ford unveiled the new electric version of its F-150. This is set to go into production next year. I expect this vehicle to be popular with consumers.
Lordstown Motors stock: my view
Weighing everything up, I think the risks outweigh the rewards here.
All things considered, I think there are much better stocks I could buy.