Wolfe Research - Another Nothing-Burger Against Lordstown Motors

Ecclesiastes Chapter 11 verse 5 states, "As you do not know the path of the wind, or how the body is formed in a mother's womb, so you cannot understand the work of God, the Maker of all things."

For me, it is always important to recognize God's power versus my shortcomings. No matter what I am involved with in life, there is always going to be something that I will never have a clear explanation for. It is at times like this, that the Bible verse above really hits home. God is superior as creator and savior.

When it comes to dealing with the public world of investing, I often need to remind myself that no one is able to predict the future perfectly. And that every piece of information needs to be taken with a grain of salt. This is especially the case when an attempt at picking winners and losers in the future is being proposed.

I've been a proponent of accumulating Lordstown Motors (RIDE), especially as hit pieces like Hindenburg Research and now Wolfe Research have attempted to manipulate the Stock Price, SP action. Before going further, let's take a quick look at some of the top chop-shops which are pivotal to executing the Wallstreet game:

  • Hindenburg Research

  • Wolfe Research

  • Citron Research

  • Muddy Waters Research

  • Fuzzy Panda Research

  • Scorpion Capital

Most of these firms operate with a very small team and typically perform specialized research on targeted companies for short positions. While there's always disclaimers from these firms, to the contrary there is always a direct and/or indirect connection with short positions. These firms reflect a distinct cog in the system of the Wallstreet game, so there are no impartial hit pieces. All hands are dirty.

The most recent claim from Wolfe Research with respect to Lordstown, is based on yesterday's reveal of Ford Motor Company's (F) electric F-150. Yes, one day of hype has changed the mind of Wolfe Research so much so, that the Price Target, PT for Lordstown has been reduced from $18 to $1 per share. It is quite comical that the drastic PT reduction was termed as a change from Peer Perform to Underperform.

Wolfe Research's commentary is as follows:

The view that Lordstown will not be competitive in the commercial electric vehicle pickup space. The belief that Ford's reveal of $39,900 and $49,900 electric pickups crystalizes concerns. Ford announced pricing levels that Lordstown simply cannot match. And Ford's advantages extend well beyond pricing, as its pickup trucks have proven reliability, performance, service and residuals that would be tough to match even if Lordstown was able to match Ford's costs. The Lordstown story as we have known it is likely over, the company does not have a Plan B and that a liquidation to a new entrant or contract manufacturer might be the best option for shareholders.

Wolfe Research is a great example of misguided assumptions, the key being that companies like Ford, General Motors (GM), Volkswagen (VWAGY), among other traditional automotive OEMs will be highly successful in the electric vehicle transition. Like many legacy businesses that will continue to be pressured, newer consumers will not be wedded to their brands. A smooth process with no hiccups is a very unlikely scenario and there is just as much risk in some cases for traditional automotive OEMs as there are for newer entrants.

Clearly, the fact that Ford will not see a Start of Production, SOP until the spring of 2022 at the earliest is a direct indication of just how premature the statements of Ford's advantages of reliability, performance, and service really are. Ford's electric F-150 will have just as much to prove as Lordstown's Endurance. For the latter, the naysayers are getting weaker as the company continues to execute.

The pricing argument is also premature as the lowest pricing being used by Wolfe Research is not an indication of how pricing will realistically play out, especially for varying electric F-150 models. CarandDriver has estimated pricing for the electric F-150 to range from $42,000 for the base model to $70,000 for Platinum and $55,000 or higher beginning with the XLT. Lordstown's Endurance is expected to be priced at just over $52,000. By Wolfe Research's logic, commercial companies will simply forgo Lordstown and spend a premium for Ford, especially if it is only $5,000-$10,000 higher.

To this point, Ford's F Series was tracking to produce close to one million vehicles before COVID. Converting the F-150 to an electric vehicle is expected to simply swap from the current internal combustion engine, ICE. Supply chains, production facilities, will all need to be updated and adjusted. Ford produced just below 2.5 million vehicles in 2019, the company will be balancing a conversion to electric vehicles for all makes and models (some that may not pan out), while Lordstown will be laser-focused on the Endurance, and subsequent opportunities.

This fact alone will impede Ford's progress, as the company will be grappling with electric vehicle, and non-electric vehicle capital budgets and production over the next decades, while laser-focused niche electric vehicle OEMs will continue to have a more streamlined operating process. All other traditional automotive OEMs will be facing a similar challenge. This transition is not only related to production, but direct-to-consumer and subscription models as well. This seems very familiar to the way Campbell Soup Co. (CPB) was able to compete against the Heinz segment of the Kraft Heinz Company (KHC) during the 20th century, focusing on select products, while Heinz dealt with hundreds.

Also, as will always be the case, battery efficiency and technology will be a key determining factor and Ford will be held to this standard as well, which is yet to be proven. Clearly, companies like Tesla, Inc. (TSLA) and Lucid Motors (CCIV) are significantly ahead of passenger traditional OEM competition. For commercial pick-up trucks, leadership opportunities are wide open for Rivian and Lordstown. In fact for electric vehicles across the board, the canvass is still quite blank. Consolidation efforts over the past decades will be tested as newer peers continue to grow and succeed. These companies are going to challenge the future traditional automotive OEMs, which is great news.

The real heartburn here form old fogies' like Wolfe Research is the paradigm shift. What they really don't like is the brand recognition that is being developed by companies like Tesla, Lucid Motors, Rivian, and Lordstown. Today, there is a new opportunity with the proliferation of electric vehicle technology. But no one is looking at the risks for traditional automotive OEMs, and rather is focusing on newer entrants. This makes sense as traditional OEMs cannot pivot fast enough, which is common and an key driver for why newer entrants are able to grow from low bases to become market makers and takers. Ford has also attempted to consider how it can become a part of the used vehicle e-commerce sales market, while Carvana, Inc. (CVNA) and Vroom, Inc. (VRM) continue to be market makers and leaders, while Ford falls further behind with limited human capital resources to pivot with.

Traditional automotive OEMs have had so much time to develop cutting edge and leading electric vehicle technology, and yet Tesla is the clear winner thus far. Lucid Motors, Rivian and Lordstown are all on the cusp of breaking into the leadership role over the next couple years, and yet, Ford, GM, and VW are still being pushed by many analysts focused on legacy models and their transition.

As an aggressive growth investor, I have no interest in Ford, GM, or VW. I'm interested in innovators, market makers and takers. Tesla is tracking towards one million vehicles produced and delivered. Lucid Motors, Rivian, and Lordstown all have similar set ups to succeed and take markets away from traditional automotive OEMs. While this may seem hard to fathom for some, it is all the same when it comes to the increasing shift away from legacy/incumbents that is afoot across every sector/industry.

It is definitely exciting to be able to witness the wide open opportunity for the electric vehicle markets, whether passenger or commercial. The short-term catalysts for Lordstown are set up for the company to succeed. Time will tell where Ford lands in the grand scheme of things. If Lordstown proves to generate an equally competitive pick-up truck, Ford is going to be in trouble as a new brand will have created a market and will continue its focus on taking it.

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