What happened
Shares of electric truck start-up Workhorse Group (WKHS +0.00%) tanked today, down nearly 9% as of 2:45 p.m. EDT after tumbling almost 12% at one point earlier in the day despite no news from the company. Fresh woes at another electric vehicle start-up, which could have serious implications for Workhorse, drove the latter's shares down today.
So what
Trading of Lordstown Motors (RIDE +7.41%) shares was halted earlier today and the stock slumped double digits after trading resumed, thanks to the company reportedly coming under fire from the U.S. Department of Justice, according to The Wall Street Journal.
The report says the DOJ is probing Lordstown, a company that's already been in the news lately for all the wrong reasons. The company warned earlier in June it may not have enough cash to last another year. Barely a week later, its CEO and CFO resigned after it was confirmed Lordstown had inflated the number of preorders for its electric pickup Endurance, production of which is expected to start later this year. The Securities and Exchange Commission (SEC) was already investigating Lordstown, and as my colleague John Rosevear rightly suggested, the SEC may have found something that warrants a DOJ probe.
Image source: Getty Images.
That brings us to the most important question: What does this have to do with Workhorse?
Well, Workhorse has a business relationship with Lordstown. Specifically, Workhorse struck a technology licensing agreement with Lordstown in 2019. As part of the agreement, it acquired a 10% stake in Lordstown with an anti-dilution clause for two years, among other things.
Simply put, Workhorse cannot sell Lordstown shares during the two-year window, and therefore suffers every time Lordstown shares are hit. For perspective, Workhorse's net loss soared to $120.5 million in the first quarter, thanks to a hefty $136.6 million charge it took because of a sharp fall in the fair value of its investment in Lordstown, which is directly correlated to Lordstown's stock price.
Now what
Although Workhorse's sales zoomed in the first quarter as it delivered six trucks, its losses mounted and it ended Q1 with only $205.1 million in cash. With the DOJ investigation only adding to Lordstown's troubles and raising serious concerns about the company's viability, Workhorse will have to find a workaround soon to win investor confidence.
