Adoption of electric vehicles is rising, but only a handful of electric truck companies will come out on top, and this turnaround prospect has big potential.
Electric-powered trucks seem poised to eventually edge out gas-powered trucks. All four major domestic vehicle makers, including General Motors (GM), Ford (F), Chrysler (part of Stellantis – STLA) and Tesla (TSLA), are close to launching, or at least developing, electric trucks. At least five public start-ups are entering the race, and no less than four additional private companies have announced their own versions of electric trucks. As trucks are often used in ways that are more conducive to electric power compared to cars, this segment carries unique opportunities for investors.
However, not all electric truck companies will survive. Only a few trucks will develop the right combination of functionality, power, range, reliability, visual appeal and price to capture meaningful market share. And, market share is critical to success, as it not only indicates that the maker is on the right track with its offerings to customers but also that it can achieve a production scale that lowers its costs per vehicle. Lower costs imply higher profitability, which then attracts more investor capital in a virtuous cycle.
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These electric truck companies started with a single idea, which over the months and years has been tweaked and modified based on engineering and market research. Like life in nature, the ones that survive aren’t the strongest, but the ones that adapt the most effectively to changes in the environment. Those that stay on the losing track will eventually fail.
As specialists in turnaround investing, we focus on companies that have “the right stuff,” but whose shares are currently out of favor with investors for what we believe are temporary reasons. We often look for a catalyst that will reverse the company’s direction back on track toward prosperity.
Turnarounds in an industry as early-stage as electric truck manufacturing are notoriously difficult. Yet, investing in some electric truck companies may be worth the exceptional risk (which could result in a total loss of value) if the odds of an exceptional return are favorable enough.
The Best Turnaround Candidate of the Electric Truck Companies
One electric truck maker in turnaround mode is Lordstown Motors (RIDE). Based in northeastern Ohio in a sprawling former General Motors vehicle factory, this company has aspirations to build the Endurance, billed as “the world’s first all-electric commercial pickup.” The future initially looked bright, with RIDE shares surging from their SPAC merger price of 10 to over 31 by September 2020. However, a scathing report this past March by Hindenburg Research cast doubt on Lordstown’s ability to start production in September 2021, the viability of its unique drive technology, and the reliability of its pre-orders. The report, followed by investigations by the Justice Department and the SEC, late regulatory filings, a shrinking cash hoard, and executive suite disarray, drove the shares down to as low as 6.
However, with the August arrival of Daniel Ninivaggi as the new CEO and board member, Lordstown has a chance to survive. Ninivaggi is a long-time auto industry executive who previously was CEO of Carl Icahn’s Automotive Group – a $2.5 billion (revenues) business – and has considerable board-level experience with struggling public companies. He brings immense strategic, leadership and capital markets savvy to Lordstown, all of which are critically needed immediately. The company has also added several capable new executives to its leadership team, including a former head of Tesla’s manufacturing, and we anticipate the arrival of a permanent CFO. Lordstown is in dire straits, with its unproven technology, numerous direct and well-funded competitors and dwindling cash balance. Survival is not certain (the shares, which have a 20% short interest, could go to zero), but with its aggressive changes, Lordstown makes for a fascinating turnaround opportunity.
To read about another of the electric truck companies with an even more appealing turnaround situation, to be discussed in our upcoming October 2021 edition, become a subscriber to the Cabot Turnaround Letter. Our recommendations have provided subscribers with monthly, highly profitable turnaround ideas whose performance has been independently verified. We also offer subscribers at least eight additional interesting turnaround ideas each month as well as regular updates and discrete buy/sell ratings, all backed by institutional quality research.
Which electric truck companies or electric car companies do you think have the highest potential?
Bruce has more than 25 years of value investing experience, managing institutional portfolios, mutual funds, and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company. Now he is helping his Cabot Undervalued Stocks Advisor readers find those undervalued stocks that let you buy low and sell high!Learn More >>