Insights

Why Lordstown Motors Stock Surged 32% This Week

What happened

After picking up speed last month, Lordstown Motors (NASDAQ: RIDE) stock accelerated its way into August and rallied a whopping 31.6% at its highest point in trading during the first week, according to data provided by S&P Global Market Intelligence.

The embattled electric vehicle (EV) start-up told investors what they wanted to hear: Its first EV will roll out this year.

So what

Lordstown Motors released its second-quarter earnings report on Aug. 4. Here are two numbers  you must know:

Operating profit: $61.3 million versus a loss of $110 million in the second quarter of 2021.
Cash balance at the end of the quarter: $236 million

Why are these numbers so important? First, Lordstown Motors didn’t generate any revenue during the quarter, and its first operating profit came entirely from the sale of its manufacturing plant. Second, the company ended the quarter with a larger-than-expected cash balance, which means it’ll need to raise less capital for funding this year than previously planned.

The latter is great news coming from a company that’s barely managing to scrape through and is facing a severe financial crunch. This, however, isn’t the real reason why the stock jumped this week.

Lordstown Motors said it made “significant progress” in the second quarter thanks to which the company is on track to start production of its all-electric pickup truck, the Endurance, in the third quarter and start deliveries in the fourth quarter.

Now what

Lordstown Motors was considered to be one of the most promising EV start-ups when it unveiled the Endurance pickup in 2020 and laid out an ambitious plan to produce 20,000 trucks in 2021. Its plans, of course, fell through, and the company recently sold its only manufacturing facility to Hon Hai Precision, better known as Foxconn. Foxconn is now building the Endurance trucks under contract manufacturing.

Given Lordstown Motors’ history, the prospect of finally seeing its electric pickup truck on the road within the next few months triggered frenzied buying activity in the stock.

Here’s what could come next: Given how volatile penny stocks can be, I wouldn’t be surprised to see similar jumps in Lordstown Motors stock as the Endurance nears production and delivery. What matters is the stock’s long-term prospects though, and it all depends on whether the Endurance will be able to stand up against the likes of Ford‘s hot-selling, more affordable F-150 Lightning pickup trucks. It’s a tall order.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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