Start-up EV Industry Wishes For A Miracle

Not all of the current tech companies have that cushy position at the top of the ivory tower.

The likes of Google, Microsoft, and Apple are just a few of a handful of privileged companies that are too big to fail and have a direct line to Congress if anything starts to go haywire.

Not every tech firm has that luxury and, to be more precise, they are usually start-ups and lesser-known, which makes sense.

In the case of the tech sector, the grass truly is greener on the other side between the haves and have-nots.

Just look at the EV sub-sector that is emblematic of this larger trend.

Lordstown Motors (RIDE) is barely keeping its head above water after the company announced a 1-for-15 reverse stock split.

Investors holding Lordstown stock should see fewer shares at a higher price in their brokerage accounts.

Lordstown has about 243 million shares outstanding. Following the reverse split, the number will be roughly 16 million.

Investors typically like conventional stock splits that reduce the price of shares while increasing the number of shares outstanding. Stock splits can make shares more affordable to retail investors and can signal that management is optimistic about the future. No one would split a stock they expect to go down.

Reverse splits typically happen after a period of hardship. Coming into Tuesday trading, Lordstown stock is down 90% over the past 12 months.

The company has struggled to produce trucks and needs more cash. Lordstown has produced 56 pickup trucks since the start of production.

RIDE is also running out of money fast and the company will need more than $200 million for the remainder of 2023 if the company is to ramp up production.

Lordstown has received a delisting notice from the exchange. It has until mid-October to remedy the situation. The threat of delisting was also a concern to partner Foxconn.

Foxconn owns the factory that produces RIDE’s EVs.

RIDE may be forced to cease operations and file for bankruptcy after manufacturing giant Foxconn told the electric-vehicle company that it’s prepared to pull out of a production partnership.

The deal with Foxconn Technology Group could unravel after the Taiwanese company threatened to withhold funding.

This quickly souring situation could rapidly destabilize the other start-ups in the EV market.

Just about eight months ago, Foxconn agreed to invest as much as $170 million in Lordstown and take two board seats. The deal gave the EV maker much-needed capital while offering Foxconn, the Taiwanese manufacturer best known as the maker of Apple Inc.’s iPhone, a firmer foothold in automotive production.

In January, Lordstown asked Foxconn to suspend production because the cost of making the Endurance battery-powered pickup exceeded the targeted sale price of $65,000 — and said it would need another partner beyond Foxconn's share costs.

RIDE finds itself in quite a pickle. Unlike many of the big tech behemoths, they can’t just make a call to the higher-ups to sort it out and they don’t have the balance sheet nor the clout to get things their way.

Essentially, fighting upstream is not an advantageous proposition and when Tesla started heavily discounting new Teslas, what consumer would opt for an untested brand for the same price?

If readers want to get into EV stocks, buy Tesla on the dip or nothing at all.