Short selling data can be a very useful risk management tool. Generally speaking, short sellers are sophisticated, high-conviction traders that have done their research. If they’re targeting a stock, it can pay to approach that security with caution.
In this report, we are going to highlight some interesting short selling activity at Lordstown Motors Corporation (RIDE:US). Lordstown Motors is an automotive company that is in the process of developing an all-electric pickup truck. Its flagship vehicle, the ‘Lordstown Endurance’ is set to go into production in the fall of 2021. The company is listed on the NASDAQ Global Select Market and currently has a market capitalization of $1.8 billion.
Lordstown Motors: Short Selling Activity
An analysis of short selling data on Lordstown Motors reveals several red flags. The first is that short interest here is currently very high. Our data shows that at present, 51 million RIDE shares are on loan. Lordstown has approximately 160 million shares in issue meaning the stock’s short interest is approximately 31%. This tells us that many investors are betting against the stock.
The second red flag is that the utilization rate is very high. Currently, it’s 98%, up from around 50% at the beginning of March. Utilization is the number of loaned shares divided by the available shares in the securities lending market, expressed as a percentage. It is essentially a measure of demand for shares on the short side. A reading of 98% tells us that demand for RIDE stock from short sellers is very high right now, which is concerning.
A third red flag is that borrowing costs have surged recently. Currently, the cost to borrow the stock is nearly 12%. At the start of March, the cost was just 1%. Again, this tells us that demand for the stock from short sellers is very high right now.
Hindenburg’s Report on Lordstown
In mid-March, Lordstown was the subject of a critical report from short seller Hindenburg Research. In this report, Hindenburg stated that Lordstown may have misled investors on both its demand and production capabilities.
Lordstown has consistently pointed to its book of 100,000 pre-orders as proof of demand for its EV pickup truck. However, Hindenburg’s view, after conversations with former employees, business partners, and an extensive document review show, is that the company’s orders are “largely fictitious” and used as a “prop to raise capital and confer legitimacy.”
Hindenburg also points out in its report that:
- In January 2021, Lordstown’s first street road test resulted in the vehicle bursting into flames 10 minutes into the test drive.
- Since Lordstown went public in October 2020, executives and directors have unloaded roughly $28 million in stock.
- One order of 14,000 trucks, representing $735 million in sales, was from a small residential apartment in Texas that doesn’t operate a vehicle fleet.