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(Bloomberg) — Lordstown Motors Co. posted its biggest two-day drop since October after the electric car startup said its current level of cash may not be enough for it to stay in business.
Shares have doubled in the past year as Tesla Inc. to the hunt for the next winner in the space, tapped by companies like Lordstown, which commanded a $5 billion market valuation just four months ago. That value fell to $1.78 billion as of Wednesday, as a warning of continued interest overshadowed the new fan base among retailers.
“This is a valuable lesson for investors,” Bespoke Investment Group said in a note. While betting on such companies at an early stage can carry the potential for high winnings, “investors should realize that their positions can be effectively leveraged.”
Recent months have been worrisome for electric car startups, many of which have gone public through mergers with so-called blank check companies. Lordstown, which was preparing to bring its first truck to market, said in March that there was an investigation by the US Securities and Exchange Commission into its operations. Other companies such as Nikola Corp. and Velodyne Lidar Inc. Its founders exit the business.
Shares of Lordstown fell 15% on Wednesday to $9.52, below the first tier of the blank check company it merged with in April 2019. Although the shares traded lower in April and May, they secured a new lease term. Life in the past two weeks where retail traders focused on stocks bid on them.
“If the company is unable to raise additional capital, based on our current estimates, we believe net cash outflow from 2021 will be approximately $60 million,” Goldman Sachs analyst Mark Delaney wrote in a note. He said the continuity warning from auditors also has the potential to make it more difficult for Lordstown to obtain payment terms with suppliers.
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