Earlier this month, flying electric car company Lilium (LILM +133.33%) announced plans to sell up to $150 million in stock -- about 150 million shares -- to a private-equity company. This buyer would then turn around and resell up to half of these shares.
Lilium then announced it had an order to sell up to 40 of its eVTOL (electric vertical take-off and landing) cars to a company called UrbanLink. Investors cheered the news that Lilium would finally have some revenue, and the share price surged. It then kept on rising through about mid-month.
So "mission accomplished"?
Not quite. On Friday, Lilium stock suffered a sharp reversal. As of 12:50 p.m. ET, shares had tumbled by 17.2% to about $0.88 a share. The reason: Management was taking advantage of the higher stock price to sell even more shares.
Friday's news
On Thursday night, Lilium announced it will conduct a private share sale, paired with warrants to buy additional shares, to multiple private-equity companies. Each paired share-warrant will cost $1.05 (Lilium stock closed Thursday at $1.06), and the warrant portion will allow the buyer to purchase an additional share at a $1.50 strike price.
On Friday morning, the company announced further details about the sale, specifically, its size -- 110 million shares and 110 million warrants -- and the total amount it hopes to raise from it -- $114 million. The company also said buyers have an "overallotment option" to raise these numbers by 15%, so the company's outstanding share count could grow by as much as 126 million, and the amount of cash raised could reach $131 million.
Is Lilium stock a buy?
Long story short, Lilium is raising a lot of money relative to its market cap of around $464 million, but it's also diluting its shareholders quite a lot -- and it's the share dilution investors aren't happy with.
Given that the company is burning $288 million a year, though -- more than twice what this secondary stock sale will raise -- if you're planning to invest in Lilium, you should probably get comfortable with the idea of your shares getting diluted repeatedly.
