The reverse stock split, a financial maneuver designed to artificially inflate a company’s share price, often signals impending trouble, particularly for cash-strapped startups that merged with special purpose acquisition companies (SPACs). The landscape is littered with the wreckage of failed advanced technology startups, especially in the electrification and autonomous vehicle sectors. With few exceptions, companies resorting to reverse splits often find themselves on a trajectory toward oblivion.
Table Content:
- The Mechanics of a Reverse Stock Split
- Historical Successes and the Current Reality
- A Desperate Attempt to Stay Afloat
- Nasdaq’s Crackdown on Penny Stocks
- Ree: A Glimmer of Hope?
- The Downward Spiral Continues
- Mullen’s Serial Reverse Splits: A Case Study
- TuSimple’s Transformation: From Autonomous Trucks to Anime
- Other Notable Developments
The Mechanics of a Reverse Stock Split
The Financial Industry Regulatory Authority (FINRA) provides a clear example: In a 200:1 reverse split, investors receive one share for every 200 they own. 5,000 shares priced at $0.10 each, totaling $500, become 25 shares at $20 each. The total value remains constant; only the share count changes. While this might temporarily boost the share price, it doesn’t address underlying financial issues.
Historical Successes and the Current Reality
While there are historical examples of successful reverse splits by established companies like Amazon, Apple, and Citigroup, these are outliers. FINRA notes that established companies on major exchanges rarely employ this tactic. The initial price bump might help regain listing compliance (e.g., maintaining the $1 minimum on Nasdaq), but investor confidence often remains elusive, leading to sell-offs and potential acquisition or bankruptcy.
A Desperate Attempt to Stay Afloat
| Company | Product | Split Date | Status | Price |
|---|---|---|---|---|
| Embark Trucks | Autonomous trucks | 1:20 8/22 | Acquired | Delisted |
| Lordstown Motors | Electric Trucks | 1:15 5/23 | Bankruptcy | Delisted |
| Ree Automotive | Electric powertrains | 1:30 8/23 | NASDAQ: REE | $9.10 |
| Workhorse Group | Electric trucks | 1:20 6/24 | NASDAQ: WKHS | $0.76 |
| Nikola Corp. | Fuel cell trucks | 1:30 6/24 | NASDAQ: NKLA | $1.17 |
| Mullen Automotive | Electric trucks | 1:100 9/24 | NASDAQ: MULN | $1.19 |
| Hyzon Motors | Fuel cells | 1:50 9/24 | NASDAQ: HYZN | $1.66 |
This table illustrates the precarious situation of many companies post-reverse split. Ree Automotive, with its innovative by-wire propulsion system, seems to be an exception, showing signs of potential viability.
Nasdaq’s Crackdown on Penny Stocks
With hundreds of companies on the Nasdaq trading below $1, the exchange is implementing stricter rules to delist underperforming companies, often pushing them to over-the-counter trading. This adds further pressure on struggling businesses.
Ree: A Glimmer of Hope?
Ree Automotive stands out as a potential success story. The company reported surging demand for its vehicles in Q3 2024, with reservations increasing by 230%. Strategic partnerships and a focus on cost management provide a more optimistic outlook compared to its struggling peers.
The Downward Spiral Continues
Despite efforts to inflate share prices, companies like Nikola, Workhorse, Hyzon, and Mullen remain vulnerable. Layoffs, production pauses, and dwindling cash reserves paint a bleak picture for their future.
Mullen’s Serial Reverse Splits: A Case Study
Mullen Automotive exemplifies the pitfalls of relying on reverse splits. With six reverse splits in its history, the company’s stock price has plummeted, and its market capitalization remains critically low despite aggressive asset acquisitions.
TuSimple’s Transformation: From Autonomous Trucks to Anime
TuSimple’s rebranding to CreateAI Holdings and its pivot to anime and video game production mark a dramatic shift. The company’s remaining cash reserves and their potential destination remain a subject of legal contention.
Other Notable Developments
Beyond the struggles of individual companies, the article also touches on developments at Lego, Shyft Group, and Schneider National, highlighting innovation and strategic partnerships in the trucking industry.
In conclusion, while a reverse stock split can provide a temporary reprieve, it rarely addresses the fundamental problems plaguing struggling companies. For many, it serves as a prelude to a more dire outcome. The trucking industry, particularly in the advanced technology sector, continues to experience significant volatility, and investors should proceed with caution.
