While the TSX index is hovering near record highs, Lion Electric (TSX:LEV) is a Canadian stock that has grossly underperformed the broader markets. Down close to 80% in 2024, the TSX stock has fallen 98% since its initial public offering in May 2021.
Currently valued at a market cap of $105 million, Lion Electric designs, develops, manufactures, and distributes all-electric medium and heavy-duty urban vehicles in North America. Its product portfolio includes battery systems, bus bodies, and truck cabins.
Let’s see why Lion Electric stock is struggling to win investor confidence and if it can stage a comeback in the next 12 months.
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How did LEV perform in Q3 of 2024?
Lion Electric recently published its third-quarter (Q3) results, which disappointed investors. While the long-term electric vehicle transition story remains intact, Lion Electric reported a 62% year-over-year decline in Q3. Its revenue fell to $30.6 million while reporting a net loss of $33.9 million.
Moreover, vehicle deliveries totalled 89 units in Q3, down from 245 vehicles in the year-ago period. What’s a matter of concern for investors is that the company ended Q3 with $27 million in total liquidity, which suggests it will soon need to raise additional capital to support its cash-burn rate.
In the September quarter, Lion Electric reduced inventory by $15 million while implementing initiatives to reduce costs by $65 million annually. However, the company included a “going concern” warning in its quarterly report, emphasizing the need to secure additional funding and restructure debt covenants as soon as possible.
Lion Electric is like a homeowner who needs to refinance the mortgage and secure a new line of credit, all amid a falling revenue base. These struggles highlight a crucial reality impacting several companies in the electric vehicle segment.
It’s evident that having great technology and strong demand is not enough to fund operations through the growth phase. Automobile manufacturing is capital-intensive, and companies must significantly expand production capabilities to benefit from economies of scale.
What next for the TSX stock?
Lion Electric ended Q3 with an order book of 1,590 vehicles valued at $420 million. Comparatively, the company is forecast to end 2024 with revenue of $148 million, down from $253 million in 2023.
Lion Electric claimed it is seeing strong vehicle interest through government initiatives such as the U.S. EPA (Environmental Protection Agency) program, which has translated to 275 orders.
At the same time, Lion Electric’s long-term opportunity remains appealing as it is part of a growing market with strong regulatory tailwinds. Alternatively, current financial risks make LEV stock a highly speculative investment.
Lion Electric represents both the promise and the peril of investing in the EV transition. While it has a proven technology and notable customer interest, ongoing financial challenges highlight the risks of scaling up manufacturing operations in a capital-intensive industry.
For risk-tolerant investors who believe in the long-term electrification of commercial vehicles, Lion Electric might be worth watching, especially if it can shore up profit margins over the next 12 months.
LEV stock trades at a discount of 50%, given consensus price target estimates. While analysts expect the TSX stock to rebound in 2025, I would recommend a more cautious approach and wait until the company showcases an ability to improve the bottom line.
