Lightning eMotors is asking shareholders to agree to authorize 20% more stock to boost its dwindling supply of cash. Otherwise, the bus, shuttle van and work truck maker may put itself up for sale or be forced into bankruptcy.
“We continue to explore all options and have been working with financial advisers to support a recapitalization and/or sale of the business,” co-founder and CEO Tim Reeser said on a second-quarter earnings call with analysts Monday.
Shareholders vote Aug. 24 on whether to issue new stock at a discount to hedge fund Yorkville Advisors. That would generate up to $50 million in capital. As of July 11, Lightning had issued 707,477 existing shares to Yorkville in exchange for $2.94 million. That’s about 63% of the money available in a prepaid agreement.
Hyzon Motors said last week it may consider a sale among its options to raise capital. Hyzon is a spinoff of Singapore-based Horizon Fuel Cell Technologies.
Similar approach to Nikola’s share gambit
If the Lightning proposal passes, current shareholders face dilution of their holdings much the same as a recent doubling of authorized shares at Nikola will affect its shareholders. Nikola paid a $200 million debt with interest to hedge fund Antara Capital with some of its newly authorized shares.
Lightning is asking shareholders to allow it to try more than once for passage. Nikola got its approval after two adjournments of its annual meeting. A lowering of the threshold for passage via a regulation change in Delaware ultimately secured approval.
The Loveland, Colorado-based company’s market capitalization and trading volume constrain it from tapping more of the Yorkville prepaid agreement or an equity line of credit with Lincoln Park Capital Fund, CFO David Agatston said on the analyst call.
Lightning shares (NYSE: ZEV) traded intraday Tuesday at $2.93, down 7.43% from their $3.16 opening price.
Cash boost expected from reducing inventory
After years of spending to build inventory and waiting for customers to pay, Lightning is beginning to reduce cash outlays.
“We have sufficient inventory and the orders in hand to convert that inventory into cash during Q3 and Q4,” Reeser said. The company expects to convert $20-$25 million of its $57 million inventory to cash through the end of the year.
That includes most of an order of 126 zero-emission commercial vehicles by Macnab Transit Sales Corp. Lightning delivered 10 vehicles in Q2 and expects to deliver the rest before the end of the year. It consists of Class 3 and Class 4 cargo vans, passenger vans and shuttle buses.
“This cash plus the Yorkville facility and the cash we will collect from the sales of our existing inventory is sufficient to fund our operations in the near future,” Agatston said.
Dual sourcing of batteries pays off
Despite the recent bankruptcy filing by battery supplier Proterra Inc., Lightning has sufficient battery packs on hand to fulfill orders, albeit at a slower rate than forecast earlier. Switching to a build-to-order approach has more to do with its cash position than battery availability.
Lightning also has a supply contract with Chinese battery maker Contemporary Amperex Technology Corp. CATL uses lithium iron phosphate chemistry, which is 30%-40% cheaper than the nickel metal cobalt chemistry used by Proterra.
“We decided after lots of challenges five years ago that we had to have a dual-source plan,” Reeser said. “We’ve had lots of challenges along the way with different battery suppliers struggling to deliver, struggling with quality … some going out of business.”
In fact, Lightning took a charge against Q2 earnings to cover recall costs associated with Romeo Power, a supplier until it was purchased by Nikola, which is liquidating Romeo’s assets. A component believed responsible for a coolant leak in two of its batteries resulted in fires that prompted Nikola to recall 209 electric trucks with Romeo packs.
“That landscape is not evolving in a positive way at this point,” Reeser said. “We have both CATL and Proterra batteries in stock. We’re able to make variants of our products with different batteries. It’s an area where our experience is paying off.”
Incentive availability increases orders
Even with a near-term threat to its survival, Lightning is benefiting from increased customer interest as myriad state and federal incentives reduce the acquisition cost of its vehicles.
“We are beginning to see increased order activity as we help customers navigate the application process and obtain needed approvals,” Reeser said. A cumbersome application and award regimen that drags out the process is improving.
“We are now seeing some steady flow and expect the pipeline and backlog to continue to accelerate as customers become more familiar with the incentive process,” Reeser said.
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