Lordstown Stock Dives After Reverse Split. The EV Start-Up Needs More Cash.

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Shares of electric-vehicle start-up

Lordstown Motors

were plummeting in early trading after the company announced a 1-for-15 reverse stock split on Tuesday.

Shares are down 9.3% to 27 cents, while

S&P 500
and

Nasdaq Composite
futures are both down about 0.1%.

The split will be effective on May 24. Investors holding Lordstown stock (ticker: RIDE) should see fewer shares at a higher price in their brokerage accounts. Lordstown has about 243 million shares outstanding. Following the reverse split, the number will be roughly 16 million.

Investors typically like conventional stock splits that reduce the price of shares while increasing the number of shares outstanding. Stock splits can make shares more affordable to retail investors and can signal that management is optimistic about the future. No one would split a stock they expect to go down.

Reverse stocks splits, however, can have the opposite effect on investor sentiment. Reverse splits typically happen after a period of hardship. Coming into Tuesday trading, Lordstown stock is down 86% over the past 12 months.

The company has struggled to produce trucks and needs more cash. Lordstown has produced 56 pickup trucks since the start of production. At the end of April, the company had about $165 million in cash. The company used about $46 million in cash to fund its business in the first quarter. Wall Street projects the company will need more than $200 million the remainder of 2023, if the company is to ramp up production.

Some of the money might be provided by partner

Hon Hai Precision Industry

(2317.Taiwan), better known as Foxconn. It owns the plant where Lordstown’s Endurance pickup truck is made.

The reverse split should raise the price of the stock above $4, depending how shares trade in coming weeks. That will be enough to meet Nasdaq listing requirements. Shares need to be above $1.

Lordstown has received a delisting notice from the exchange. It has until mid-October to remedy the situation. The threat of delisting was also a concern to partner Foxconn.

Foxconn was due to send some $50 million to Lordstown in early May, but it hasn’t made the payment yet. Foxconn didn’t immediately respond to a request for comment if the reverse split had an impact on funding.

The higher stock price might allay Foxconn’s concerns, but challenges remain.

Write to Al Root at [email protected]