Why This Lordstown Motors Analyst Sees 66% Downside In EV Stock

Struggling electric truck manufacturer Lordstown Motors Corp. RIDE recently announced its decision to sell its Ohio plant to Taiwanese contract manufacturer Hon Hai Precision Industry Co., Ltd. HNHPF.

The Lordstown Analyst: Morgan Stanley analyst Adam Jonas downgraded Lordstown shares from Equal-weight to Underweight and reduced the price target from $8 to $2, suggesting about 66% downside from current levels.

Jonas lowered the bear case valuation is lowered to zero  in the event the Foxconn deal falls through, and said there is no other source for securing capital to remain as a going concern. 

The Lordstown Takeaways: The $230 million for which Lordstown sold the Ohio plant to Foxconn is about one-fifth less than Morgan Stanley’s prior plant value estimates, Jonas said in a note.

Secondly, continuing with the Endurance likely exposes the company to the risk of further elevated cash burn and liquidity risks even in a contract manufacturing scenario that involves shifting much of the fixed cost burden to Foxconn, the analyst said.

The company is negotiating a contract manufacturing agreement with Foxconn to manufacture the Endurance and potentially other models on a new platform, he said.

Related Link: Why This Analyst Sees a Bumpy Ride Ahead For Lordstown

At $6/share, the market is discounting a successful consummation of the Foxconn deal, a modestly successful Endurance program yielding positive FCF and at least 50,000 units at average transaction price of $50, 000 by 2030, Jonas said. 

The Endurance truck program may not come to fruition before the middle of 2022 at the earliest, the analyst said. 

Modest volume of "non-Endurance" products made with Foxconn — probably a van and derivatives — could begin in late 2023 at the earliest, ramping to 12,000 units by 2025 and just over 30,000 units by 2030, he said. 

This, however, will require further infusions of capital in 2022 and/or 2023, Jonas said. 

RIDE Price Action: Lordstown shares were sliding 8.8% to $5.34 midday Tuesday.

Related Link: How Long Will The Wait Be For Electric Pickup Trucks?