Shares of several companies in the electric vehicle space had an exciting week, but “exciting” doesn’t always mean good. While quite a few did well on the resurgence in interest in so-called meme stocks, at least one — Lordstown Motors (NASDAQ:RIDE) — had a rough ride on some grim news.
Here’s how the big movers in this space performed this week through Thursday’s close.
- Canoo (NASDAQ:GOEV) was up about 12.4%.
- Churchill Capital IV (NYSE:CCIV), the special-purpose acquisition company set to merge with Lucid Motors, was up about 6%.
- Fisker (NYSE:FSR) was up about 10.6%.
- Lordstown Motors fell 15.3% this week through Thursday’s close.
- Workhorse Group (NASDAQ:WKHS) was up about 15.4%.
There are two stories here, one for the stocks that went up and one for Lordstown. We’ll get to Lordstown in a moment.
For the stocks that went up, I think the moves we’ve seen this week are a continuation of the movement back into meme stocks, possibly a result of investors moving out of the larger cryptocurrencies that have slumped in value recently.
As I said last week, there may also be some short-squeeze effects at work. When a stock in which many traders have taken short positions makes a sharp upward move, the short-sellers will sometimes rush to close out (or cover) their positions by buying the stock, adding to the pressure that is driving the stock’s price upward.
Earlier this year, we learned that some members of Reddit’s WallStreetBets group have engaged in coordinated buying of out-of-the-money call options on heavily shorted stocks as a way to initiate or fuel short squeezes. A call option gives the owner the right to buy shares at a set price for a specific period; when a dealer sells a call option at a price above the stock’s current level, the dealer will typically hedge the transaction by buying shares of the stock. An individual investor who buys such call options has more leverage — in the sense of applying upward pressure to the stock price — than an investor who spends the same amount of money buying shares.
Given that quite a few electric vehicle stocks were among the Reddit group’s favorites last winter, it seems very possible that these are the forces that pushed them up this week.
But as I said, Lordstown has been the exception. There’s a good reason for that.
Lordstown’s stock price is down for good reasons, and frankly I’m surprised that it hasn’t fallen further. In a regulatory filing this past week, Lordstown’s auditors disclosed that there is “substantial doubt” about the company’s ability to continue as a going concern for longer than another year.
That disclosure, known as a “going-concern” notice, is a big deal. In this case it points to the fact that Lordstown doesn’t think it has enough cash to put its first product, an electric pickup called the Endurance, into full production. There may be more to the story: It’s possible, for instance, that the reveal of Ford Motor Company‘s (NYSE:F) electric F-150 Lightning last month led some potential commercial-fleet customers to cancel preorders for the Endurance; if Lordstown was counting on cash flow from early deliveries to ramp up production, a lack of big orders could be a major problem.
The company says it’s working on getting additional financing. But right now, it looks grim — and that’s why the stock price was down in what was otherwise a good week for electric vehicle stocks in general.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.