Lordstown Motors Corp.’s warning that it could run out of money comes less than a year after the startup raised more than $600 million in cash, highlighting the difficulties for startups trying to break into a capital-intensive business.
The two-year-old firm, which is converting a former General Motors Co. factory to build electric pickup trucks, ended the first quarter with about $587 million. But it has cautioned that its cash burn is accelerating, largely because of higher-than-expected costs related to vehicle development and testing, and it will need to raise more money soon or risk running out of cash.
On Tuesday, it amended its annual filing with a going-concern warning, a signal to investors that it may not survive financially the next 12 months. Lordstown Motors stock tumbled 16% on Tuesday’s news and has had a volatile day Wednesday, falling as much as 21% before rising up to 15%. The stock closed at $11.23, up a penny.
“This is a massively capital-intensive industry,” said Jeff Schuster, president of global forecasting at industry research firm LMC Automotive. “That’s exponentially higher when you’re talking about a new startup.”
Building a car manufacturer from the ground up requires ongoing infusions of capital to help cover everything from engineering costs to manufacturing and marketing, he said.