Should I buy EV stock Lordstown Motors after its share price crash?

Electric vehicle stock Lordstown Motors has fallen a long way since mid-February. Is this share price weakness a buying opportunity?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Will it be too late to buy Nvidia stock in March?

NVIDIA stock is up more than 60% since the start of 2024. Our writer considers whether it might still be…

Read more »

Typical street lined with terraced houses and parked cars
Investing Articles

Why did Direct Line shares just soar 27%?

Direct Line shares have jumped more than a quarter in the course of today's trading session. Our writer explains why…

Read more »

Close-up of British bank notes
Investing Articles

These 2 shares are Dividend Aristocrats. Which should I buy this March?

Our writer likes the business model of this pair of FTSE 100 Dividend Aristocrats. So why would he only consider…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

I bought 49 Unilever shares in June. Here’s what they’re worth today

Harvey Jones bought a modest amount of Unilever shares last summer hoping the stock would soon recover. He's having to…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

I reckon these shares, potentially 20% undervalued, are Warren Buffett’s type of investment

Oliver Rodzianko thinks Games Workshop is an absolutely stellar investment. As it's potentially undervalued, he reckons Warren Buffett would agree.

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Great investing habits that can boost my Stocks and Shares ISA

Forget complicated calculations and financial jargon! Our writer uses a few simple habits to build wealth inside his Stocks and…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Why has the St. James’s Place share price crashed 30%, after FY results?

The St. James's Place share price has just fallen off a cliff. What could have gone wrong in 2023 that's…

Read more »

Family in protective face masks in airport
Investing Articles

Here’s how much I’d have if I’d bought 1,000 Rolls-Royce shares 10 years ago

Rolls-Royce shares may be flying high this year but that wasn't always the case. I'm calculating how much I'd have…

Read more »