Lordstown Motors Corp (NASDAQ: RIDE) shares had a wild day on Wednesday after the electric car startup said that it was in discussion with several parties regarding a capital raise barely a day after the company said warned of a cash crisis.
On Wednesday, the stock dropped almost 21% before surging 15% on the news of the talks to end the day at $11.23. While on Thursday it lost 5.61%.
Lordstown looking for additional capital
The company indicated that it is already in active talks with several investors to raise additional capital in an email statement. In addition, Lordstown announced last month that it had commenced talks to secure financing during its first-quarter results.
Last year, investors enthralled by Tesla Inc.’s advances sought the next big winner in the electric cars field, benefiting firms such as Lordstown, which was valued at $5 billion four months ago. As of Wednesday, that value had dropped to around $2 billion, as its going-concern warning overshadowed the company’s newfound popularity among retail traders.
Bespoke Investment Group indicated in a note that this was a valuable lesson for investors. The firms said that although betting on early-stage companies has potential for huge payouts; investors should be aware that their positions can easily vapourware.
EV startups facing challenging times
High-flying EV startups that went public through mergers with SPACs have had difficulty in the past few months. For instance, Lordstown, which has been working on the launch of its first truck, announced in March that the SEC was investigating it.
Goldman Sachs’s Mark Delaney indicated in a note that if Lordstown fails to raise more funds, based on current estimates, its net cash at the end of the year will be $60 million. Delaney said that the going concern warning can make it difficult for the company to get payment terms with its suppliers.