Lordstown Motors Hires Respected CEO from Automotive Industry; Rally Not Justified
On August 26, Lordstown Motors Corp. (NASDAQ: RIDE) appointed automotive industry veteran Daniel Ninivaggi as its CEO. Most recently, Mr. Ninivaggi had been CEO of Icahn Enterprises L.P. (NASDAQ: IEP), which, among other things, operates an automotive aftermarket service network and a parts distribution business.
Lordstown’s new CEO also was Co-Chairman and Co-CEO of Federal Mogul Holdings Corporation, a major supplier of powertrain, chassis, sealing, brake, and other automotive components.
Investors have welcomed the news. At its peak on August 26, the stock traded at US$7.79 and closing the session at US$6.49, up 17% on the day. Mr. Ninivaggi has a solid reputation as an automotive executive, but we think the market has over-reacted to the news.
Consider the following:
- Mr. Ninivaggi’s appointment does nothing to solve Lordstown’s key issue — its rapid cash burn rate. On August 11, Lordstown increased its projected 2021 cash burn by an astonishing ~US$200 million to US$780-US$825 million from the US$585-US$625 million guidance it issued in late May. Lordstown’s year-end cash balance was about US$630 million, so it will need to raise at least US$150 million of cash in 2H 2021 to reach a zero cash balance by December 31, 2021.
- Lordstown’s stock may be rising because of Mr. Ninivaggi’s previous affiliation with a company controlled by Carl Icahn, a well-known activist investor. There is no indication that Mr. Icahn plans to invest in Lordstown.
- While he has extensive experience in the automotive aftermarket and parts business, Mr. Ninivaggi appears not to have experience managing a company in the midst of a restructuring or at an OEM.
According to an 8-K filed with the SEC, Mr. Ninivaggi will receive a base annual salary of US$750,000; an annual target bonus of more than US$900,000; 700,000 stock options; and 700,000 restricted stock units.
US$220 Million Cash Drawdown in 2Q 2021
Lordstown’s cash balance fell to about US$366 million as of June 30, 2021, down from US$587 million on March 31, 2021. The company expects its aggregate cash to decline at a slower pace in 3Q 2021, reaching US$225-US$275 million on September 30, 2021. Cash burn will then presumably reaccelerate in the fourth quarter.
| (in thousands of US $, except for shares outstanding) | Quarter Ended June 30, 2021 | Quarter Ended March 31, 2021 | Year Ended December 31, 2020 |
| Operating Income | ($110,337) | ($106,206) | ($102,481) |
| Operating Cash Flow | ($99,854) | ($71,520) | ($64,320) |
| Capital Expenditures | ($121,000) | ($54,264) | ($58,237) |
| Cash – Period End | $365,900 | $587,043 | $629,761 |
| Debt – Period End | $0 | $1,015 | $1,015 |
| Shares Outstanding (Millions) | 176.6 | 176.6 | 168.0 |
Lordstown hired a solid experienced CEO in Daniel Ninivaggi, but his hiring does not solve the company’s precarious cash flow position. One positive is that Lordstown still expects “limited production” of its Endurance™ electric full-size pickup truck to begin in September 2021.
Lordstown Motors Corp. last traded at US$6.48 on the NASDAQ.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
