This rise hasn’t gone unnoticed by short sellers (sophisticated investors who seek to profit from falling share prices). Right now, short sellers are betting against a number of EV stocks with the expectation that they’ll crash.

Here, I’m going to highlight three EV stocks that short sellers are currently targeting. Given the high level of short interest these stocks have, I’ll be avoiding them for now.

Lordstown Motors

Let’s start with Lordstown Motors (NASDAQ: RIDE), which specialises in pick-up trucks and work vehicles. At present, around 39.1m Lordstown shares are being shorted, which equates to short interest of 35%.

It’s not hard to see why the short sellers are targeting Lordstown. For starters, this company has experienced a number of delays getting to production. Recently, it pushed its production timeline out again. It now expects commercial production of its Endurance pick-up truck to start in the third quarter of 2022, as opposed to the second quarter.

Secondly, the company is under investigation from the US Securities and Exchange Commission (SEC) in relation to its deal to go public.

It’s worth pointing out there has been some positive news in relation to Lordstown recently. Earlier this month, the group sold its Ohio factory to manufacturing giant Foxconn. The buyer also signed an agreement to help Lordstown manufacture its vehicles. 

Overall, however, there appears to be a lot of uncertainty here.

Nikola

Another EV stock that short sellers are betting against is Nikola Corp (NASDAQ: NKLA), which is developing a range of battery/electric semi-trucks. At present, around 70.7m NKLA shares are on loan, which equates to short interest of around 35%.

Like Lordstown, this company has also been investigated by the SEC. Earlier this month, Nikola said it was working with the US financial regulator to settle charges against founder Trevor Milton, who allegedly misled investors about the company’s technology and capabilities. It seems the company may be facing a fine of $125m. It’s worth noting that some of the claims against Nikola were originally unearthed by short seller Hindenburg Research, which published a scathing report on the company last year.

Nikola is currently trying to sue Tesla over the design of its electric truck. If it wins, it could receive billions in damages. This could improve its outlook. I’m not expecting Nikola to win though. One expert says Nikola’s claims against Tesla are ridiculous.

Fisker

A third EV stock with high short interest is Fisker (NYSE: FSR). It’s developing the Fisker Ocean, an all-electric SUV designed by Danish automotive designer Henrik Fisker, who designed Aston Martin’s DB9. At present, 59.8m shares are on loan here, which represents short interest of around 42%.

Fisker appears to have a good product. Its flagship model, which is set to go into production in 2022, has already received a lot of orders. It also has some big partnerships, including deals with Magna International and Foxconn.

What stands out here however, is the valuation. Currently, Fisker has a market-cap of around $6.3bn, despite the fact that it’s yet to produce a car. Clearly, the short sellers see this valuation as too high.

Given the high level of short interest here, I’ll also be avoiding this EV stock for now.

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Amid all this euphoria, I nervously recall one wise quote from billionaire investor Warren Buffett: “Be fearful when others are greedy and greedy when others are fearful.” Just how long until the next stock market crash? These two warning signs have me worried today.

Stock market crash sign #1: meme/Reddit stocks

During late-stage bull markets, company fundamentals go out of the window. What remains as a driving force is pure sentiment. And the momentum created by relentlessly positive sentiment can drive prices to bubble levels prior to a stock market crash.

For example, take the share prices of ‘meme’ or ‘Reddit’ stocks. For instance, GameStop Corp (NYSE: GME) stock has been on a wild roller-coaster ride in 2021. From a 52-week low of $3.77, GME stock ended 2020 at $18.84. So far in 2021, it has hit three huge peaks and troughs, exploding to a record of $483 on 28 January. Driven by crowds of private investors acting in concert, I’ve rarely seen such massive price volatility since 1999/2000. Then, the US stock market crashed spectacularly in March 2000. I expect this bubble in meme/Reddit stocks to go the same way in due course.

Warning sign #2: SPACulation (and electric-vehicle stocks)

My second sign of euphoric speculation is SPACs (special purpose acquisition companies). These ‘blank cheque’ shell businesses have no commercial operations. Instead, they list on a stock market and use investors’ cash as a war-chest to acquire private companies. The problem with SPACS is it seems they have gone from being one useful alternative to heavily regulated IPOs (initial public offerings) to being a bubble. According to Refinitiv data, almost 500 SPACs with over $140bn in assets were chasing deals at end-April. In a market this crowded, it is inevitable that bad deals will follow (because prices become frothy and widely inflated before a stock market crash).

Take Lordstown Motors (NASDAQ: RIDE), which floated last October via a SPAC takeover. On 11 February, shares in this maker of electric pick-up trucks were riding high, closing at $30.75. But stocks in electric-vehicle start-ups blew a huge bubble before bursting recently, as this Financial Times spreadsheet (Google doc) starkly reveals.

A week ago, on 8 June, Lordstown warned that it did not have enough money to begin commercial production of its Endurance truck. The firm warned, “These conditions raise substantial doubt regarding our ability to continue as a going concern”. Yesterday, its chief executive officer and chief financial officer both resigned. Lordstown shares closed at $9.26 on Monday, crashing almost seven-tenths (69.9%) in five months. Such crazy corporate shenanigans were common in the run-up to the stock market crash of 2000-03. SPAC investors beware.

Should I sell my shares?

Will worries about a stock market crash push me to sell up and run screaming to the woods? No, because I have near-zero exposure to these bubble markets. However, I do worry about the next market downturn or setback. That’s why I buy shares only in well-run, rock-solid, cash-generative businesses. For now, I’ll stick to bargain-hunting in the FTSE 100 and leave bubble stocks for younger, braver traders!

The post Stock market crash: these 2 warning signs make me anxious appeared first on The Twelfth Magpie.

Is this share price pullback a buying opportunity for me? Let’s take a look at the investment case for Lordstown stock.

Lordstown Motors: business description

Lordstown Motors is an American electric vehicle manufacturer in the process of developing an all-electric pickup truck. Last year, the company went public via a special-purpose acquisition company (SPAC) deal. Currently, it has a market cap of about $1.4bn.

Lordstown’s flagship vehicle is its ‘Endurance’ model. This EV, which is set to go into production later in 2021, looks quite similar to Ford’s F-150 pickup truck (which has been the best-selling vehicle in the US for a long time).

Previously, Lordstown had advised that it was expecting to produce around 2,200 Endurance vehicles this year. However, yesterday, the company slashed its production guidance for the year and said that it will only be able to produce about half this figure, at best. Lordstown blamed a lack of funding for the cut in guidance.

The bull case

There are some things to like about Lordstown, from an investment point of view.

For starters, the company operates in a growth industry. According to Allied Market Research, the global EV market is set to be worth around $800bn by 2027, up from $160bn in 2019. This industry growth should favour Lordstown.

Secondly, there appears to be some interest in the Endurance from buyers. Earlier in the year, the company said that it had received over 100,000 non-binding orders for its EV from commercial fleets.

The bear case

I have some reservations about investing in Lordstown Motors stock, however.

One is in relation to a recent report on the stock from short seller Hindenburg Research. In its report, Hindenburg made a number of worrying claims, including that:

• Lordstown’s orders are “largely fictitious”. The short seller claims to have spoken to both former employees of Lordstown and its business partners and believes that the 100,000 orders is not an accurate figure. For example, it says that one order of 14,000 trucks, representing $735m in sales, was from a small residential apartment in Texas that doesn’t even operate a vehicle fleet.

• In January of this year, Lordstown’s first street road test resulted in the vehicle bursting into flames 10 minutes into the test drive.

• One former employee said that Lordstown is experiencing delays and that production could be years away.

Another concern is in relation to Lordstown’s short interest. Currently, this is around 33%. This indicates that short sellers (investors who are betting against the stock) are aggressively targeting RIDE stock right now.

Finally, I think Lordstown is going to have some real competition on its hands in the future. As I mentioned earlier, Ford’s F-150 has been the best selling vehicle in the US for years now. Recently, Ford unveiled the new electric version of its F-150. This is set to go into production next year. I expect this vehicle to be popular with consumers.

Lordstown Motors stock: my view

Weighing everything up, I think the risks outweigh the rewards here.

All things considered, I think there are much better stocks I could buy.

The post Should I buy EV stock Lordstown Motors after its share price crash? appeared first on The Twelfth Magpie.