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Lordstown Motors Has a ‘Going Concern’ Problem, Meme or No Meme

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Lordstown Motors issued a “going concern” warning in is regulatory filings.

Courtesy Lordstown

Electric-vehicle maker

Lordstown Motors

issued a “going concern” warning in its quarterly financial filings. That has the stock tanking in late trading Tuesday.

Shares dived more than 30% from daily highs in late trading. Shares closed down more than 16% on the day. The

S&P 500

and

Dow Jones Industrial Average,

for comparison, finished the day roughly flat.

Lordstown (ticker: RIDE) management said it will need more cash to reach commercialization of its EV truck dubbed Endurance. They simply need more money to get to a point where they can make money.

“These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed consolidated financial statements,” reads the quarter report filed.

A going concern warning is significant. “A going concern opinion is warranted when there is substantial doubt the company can continue to conduct its normal business operations in the foreseeable future without having to liquidate a portion of its assets and/or restructure its obligations,” accounting expert Robert Willens tells Barron’s.  

Practically speaking, for investors, it means the stock can go down significantly. Without an infusion of much-needed cash, existing stockholders could be wiped out.

Lordstown didn’t immediately respond to a request for comment about the language in its filing.

The quarterly filing was late, and Lordstown disclosed last Friday that it had received a notice from Nasdaq about a potential delisting because of the late filing. Companies have to maintain regular financial filings to be listed on major exchanges.

Lordstown shares have been caught up with other meme stocks, which are shares of heavily-shorted companies that show up on social media sites encouraging retail traders to buy. About 31% of Lordstown shares available for trading are borrowed and sold short by bearish investors betting on price declines. That’s roughly five times the average short interest in other small-capitalization stocks. Meme traders target stocks with high short interest because a rapidly rising price can force short sellers to cover, driving shares even higher.

It’s been a difficult stretch for Lordstown investors. Coming into Tuesday trading, shares were down about 33% year to date.

Write to Al Root at [email protected]

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