Shares of Lion Electric (TSX:LEV) are trading 96% below all-time highs, valuing the company at a market cap of $194 million. Lion Electric stock was listed on the TSX in May 2021, and it has since trailed the broader index by a wide margin. This underperformance has continued in 2024, and the stock is down over 60% year to date. Let’s see if this beaten-down TSX stock is a good buy right now.
An overview of Lion Electric
Lion designs, develops, manufactures, and distributes all-electric medium- and heavy-duty vehicles. To date, it has shipped over 2,100 vehicles with more than 28 million miles driven. The company’s portfolio includes six electric truck and school bus models available for purchase.
With manufacturing facilities in the U.S. and Canada, Lion Electric has the capacity to produce 5,000 vehicles per year. Lion Electric has established a leadership position in the electric school bus segment and is poised to replicate this success in the truck segment.
A weak performance in Q2 of 2024
In the second quarter (Q2) of 2024, Lion Electric reported revenue of $30.3 million, down almost 50% year over year, compared to sales of $58 million in the year-ago period. It delivered 101 vehicles in the quarter, a decrease of 98 vehicles compared to the same period in 2023. Lion Electric attributed lower shipments to the impact of the timing of EPA (Environmental Protection Agency) rounds and delays and challenges tied to ZETF (Zero Emission Transit Fund) program subsidies.
Lion Electric posted a gross loss of $15.2 million in Q2 due to higher manufacturing costs, the introduction of new products, and lower sales volume, while its gross profit totalled $0.4 million last year.
Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) loss more than doubled to $20.6 million from $9.7 million in the last 12 months.
What’s next for Lion Electric stock?
Lion Electric ended Q2 with an order book of 1,994 vehicles which includes 190 trucks and 1,804 buses, representing a total order value of $475 million. Comparatively, its sales totalled $345 million in 2023.
As of July 30, the LionEnergy order book had 394 charging stations, representing a combined total order value of $9 million.
To improve profit margins, Lion Electric announced a 30% reduction in its workforce across Canada and the U.S., saving the company around $25 million annually. It will also adjust truck manufacturing operations due to lower-than-expected demand for battery-powered tricks. Lion Electric explained it will introduce a batch-size manufacturing approach for tucks directly aligned with its order book.
Additionally, Lion Electric will create a new product line to sell its battery packs to third parties and establish a process to optimize operations. Implementing an efficiency improvement plan should help it lower operational expenses, including logistics costs and other selling and administrative expenditures.
The Foolish takeaway
Lion Electric is part of an expanding market, but it continues to wrestle with competition and negative gross margins. Investing in Lion Electric stock carries substantial risk, given that it ended Q2 with just $2 million in cash and $370 million in debt.
It suggests that Lion Electric will have to raise equity capital to service its interest payments, diluting shareholder wealth in the process.
