While Wall Street pundits previously heralded the electric vehicle industry as the future of mobility and transportation, circumstances this year present a grim picture. In particular, commercial EV specialist Lordstown Motors (US:RIDE) faces a tough task of staying competitive amid myriad economic and sector-specific headwinds.
According to a Reuters report on Thursday, Lordstown disclosed that it received a de-listing notice from Nasdaq and that it’s evaluating actions, which may include a reverse stock split to meet the exchange’s minimum bid price requirement. Nasdaq stipulates that a listed security must maintain a price of at least $1 per share.
The shares closed at 48 cents on Friday, extending RIDE stock’s year-to-date decline to near 58%. In the same period, the SPDR S&P Kensho Smart Mobility ETF (US:HAIL) has lost 1.54%. That exchange-traded fund has a 1.1% allocation of RIDE shares in its portfolio.
Fitful Filing
On April 19, Lordstown filed a Form 8-K with the U.S. Securities and Exchange Commission (SEC). In the document, management revealed that it anticipated the receipt of Nasdaq’s bid price requirement notification. Therefore, on April 11, the company filed a definitive proxy statement for its annual meeting of stockholders (to be held on May 22) to include a proposal to vote on a reverse stock split.
Per the 8-K, the proposed reverse split ratio will range from 1:3 to 1:15. Fundamentally, the SEC notes that stock splits do not dilute ownership interests of existing shareholders. With the proportion of equity ownership remaining the same, a reverse split does not change the core nature of the underlying enterprise.
However, the Financial Industry Regulatory Authority (FINRA) warns that reverse splits do not come without possible financial damage to stakeholders. Specifically, FINRA states that “[i]f a reverse split is announced and actually occurs, proceed with caution. Reverse splits tend to go hand in hand with low-priced, high-risk stocks. This is especially true with reverse splits that result in a post-split share price that is many times the price of the stock’s current price.”
Cynical Investors
More importantly, investors may view a reverse stock split as a cynical attempt to meet compliance without substantively improving the underlying business. Here, RIDE stock encounters a significant credibility challenge. As Lordstown noted in its fourth-quarter earnings report, the company filed paperwork with the National Highway Traffic Safety Administration (NHTSA) to voluntarily recall its Endurance electric truck to address supplier quality issues.
Heaping additional pressure on RIDE stock is Tesla (US:TSLA) and its decision to slash prices on its popular EV models. According to another Reuters report, Elon Musk’s “other” company has been cutting prices globally since January in a bid to drive volume. Naturally, the decision pressured other EV manufacturers, including Rivian Automotive (US:RIVN).
Last week, Bloomberg Intelligence analysts Kevin P. Tynan and Andreas Krohn came out with a report that claimed Rivian and Lucid Group (US:LCID) “lose more than $200,000 on every EV they sell, while Tesla’s bloated supply suggests its price cuts are a demand problem, not a grab for market share.”
Automotive industry publication Kelley Blue Book have noted that the average price for a new EV stood over $66,000, well above the auto industry average. However, that may have been too steep, as evidenced by Tesla’s price cuts. Therefore, in a bid for viability, other EV makers may need to respond, presenting longer-term profitability concerns.
This article originally appeared on Fintel
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