Lordstown Motors erases loss on talks about capital raise

Lordstown Motors Corp. shares swung widely between losses and gains on Wednesday after the electric-vehicle startup said it was in talks with multiple parties to raise capital, a day after warning about a cash crisis.

After dropping as much as 21% earlier in the day, the stock surged 15% on the news of the discussions. It closed nearly flat at $11.23.

The company said in an emailed statement it was “already in active conversations with multiple parties” to raise capital. During its first-quarter results last month, Lordstown said it had started talks for securing funds.

The shares doubled last year as investors dazzled by Tesla Inc.’s gains sought the next winner in the EV space, benefiting companies like Lordstown, which commanded a $5 billion market valuation just four months ago. That value plunged to about $2 billion as of Wednesday, as a newfound fandom among retail traders was eclipsed by its going-concern warning.

“This is a valuable lesson for investors,” Bespoke Investment Group said in a note. While betting on such early stage companies can hold the potential for high payoffs, “investors need to be aware that their positions could be effectively vaporware.”

The recent months have been troubling for high-flying EV startups, many of which went public by merging with so-called blank-check companies. Lordstown, which has been preparing to bring its debut truck to market, said in March there was a U.S. Securities and Exchange Commission probe into its operations. Others like Nikola Corp. and Velodyne Lidar Inc. saw their founders exiting the businesses.

Lordstown shares fell as low as $8.88 earlier on Wednesday, below the debut level of the blank-check company it merged with in April 2019. Though the shares traded even lower in May, they had gotten a new lease on life in recent weeks as meme stock-focused retail traders bid them up.

“If the company is unable to raise additional capital, based on our current estimates, we believe the net cash exiting 2021 would be about $60 million,” Goldman Sachs analyst Mark Delaney wrote in a note. The going concern warning from auditors also has the potential to make it more difficult for Lordstown to get payment terms with suppliers, he said.