Globe & Mail National Bank Financial’s Rupert Merer expects The Lion Electric Co. (LEV-N,
) to be hurt by a supply chain issues through 2022.
In a research note previewing the Saint-Jrme, Que.-based manufacturer’s first-quarter results, scheduled for a May 3 release, the equity analyst reduced his full-year profit expectations, citing higher parts, labour and expenses costs for its growing operations.
Mr. Merer does see tailwinds from “good” bus orders, however he thinks a ramp-up in truck orders remains elusive.
“Following Russia’s invasion of Ukraine, diesel prices are up, making EVs more attractive,” he said. “A government push for EVs in the U.S. & Canada should also benefit the industry, including the first $500 million of U.S. funding for school buses to be awarded this year, with applications open for a period of 90 days starting in May (up to $375k per bus). LEV has seen success with school bus orders (backlog now 2,025 units), however, LEV’s truck orders and sales have not shown much momentum despite the bigger truck market. LEV has a truck order backlog of about 300 units, with only 130 new orders since May 2021 and 45 trucks delivered last year. Meanwhile, some of LEV’s competitors in the U.S. (some are still in pre-production stages) have seen more success. We lowered our long-term assumptions ... though we believe that momentum in truck sales could pick up when LEV starts production in Illinois with ‘Made in America’ trucks and a growing product offering.”
Mr. Merer noted Lion Electric’s second lock-up agreement, for approximately 8 million shares held by its SPAC sponsors Northern Genesis Acquisition Corp., will expire on May 7, noting: “We believe the stock may have been under pressure with the risk that some of these investors could sell as of May 9th.”
Keeping an “outperform” rating, he cut his target to US$10 from US$13, citing “rising bond yields, continuing industry-wide supply chain and labour challenges as well as a potential for future dilution.” The average is US$12.75.