On Wednesday, the shares of Lordstown Motors Corp. swung widely between losses and gains after the electric-vehicle startup said that it was in talks with multiple parties to raise capital, a day after warning about a cash crisis.
After dropping as much as 15% earlier in the day, stocks jumped on the news of the discussions. As of 3:40 p.m., the shares were up 0.2% to $11.24.
In an emailed statement, the company said that it was'already in multiple conversations with active parties to raise capital. Lordstown announced last month during its first quarter results that it had started discussions for securing funds.
Last year, the shares doubled as investors who were 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 only four months ago. As of Wednesday, this value dropped to about $2 billion as a newfound fandom among retail traders was eclipsed by its going-concern warning.
'This is a good lesson for investors, said Bespoke Investment Group in a note. While betting on 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 confusing for so-called blank-check startups, many of which went public by merging with high-altitude virtual checks. Lordstown, which is preparing to bring its debut truck to market, said in March that there was a U.S. Securities and Exchange Commission probe into its operations. Others like Velodyne Lidar Inc. and Nikola Corp. saw their founders exit the businesses.
Lordstown shares fell on Wednesday as low as $8.88, below the debut level of the blank-check company that it merged with in April 2019. Although shares traded even lower in May, they had gained a new lease on life in recent weeks as meme-focused retail traders offered them up.
If the company is unable to raise additional capital based on our current estimates, we believe the net cash at 2021 would be about $60 million, wrote Goldman Sachs analyst Mark Delaney in a note. The Going Concern Warning from auditors has also potential to make it more difficult for Lordstown to get payment terms with suppliers, he said.
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