Reverse Stock Splits: A Cautionary Tale of Financial Maneuvering
The concept of a reverse stock split—a financial strategy that deceptively inflates a company's share price—often rings the death knell for many firms, especially startups merging with special purpose acquisition companies (SPACs). This maneuver might boost stock prices temporarily, but more often, it leads companies down a perilous path.
All Hat, No Cattle
According to the Financial Industry Regulatory Authority, a typical reverse stock split might unfold as follows: A company might declare a 200:1 reverse split, whereby investors receive a single share for every 200 they possess. Consequently, if one held 5,000 shares worth 10 cents each ($500 total), post-split, they would hold 25 shares valued at $20 each, maintaining the $500 value unchanged, with only the share count altered.
Startups like FasterCapital identify rare instances where reverse splits have succeeded, involving giants like Amazon (1999) and Apple (2000). However, established companies generally avoid this path.
Initially, such splits can help regain listing compliance—such as maintaining a $1 share price on the Nasdaq. But investors often vanish afterward, leading to gradual selldowns which might culminate in bankruptcy or acquisition.
An Artificial Boost to Keep Trading
| 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 list highlights that of the few companies hanging on post-split, Ree Automotive—an Israeli company known for its by-wire electric propulsion systems—is showing signs of stability.
As of August, 409 Nasdaq-listed companies traded below $1 a share, as indicated by [WSJ](Help Center). Pushing stricter compliance rules, Nasdaq aims to delist many such firms, often driving them to over-the-counter trading.
Ree Bucks the Trend
Ree reported an impressive demand surge for their "Powered by Ree" vehicles, with reservations jumping 230% to $137 million—extending beyond 2025. The company raised new funds through stock sales, enhancing its financial stability as it targets North American deliveries by 2025.
“Ree is hitting cost and cash targets as peers file insolvency,” analyst Jeff Osborne noted recently.
Slip Sliding Away
Nikola has faced workforce reductions and could run out of cash soon. Meanwhile, amidst production halts and loan defaults, Lion Electric filed for Canadian creditor protection.
Mullen's 6 Reverse Splits
Serial reverse splitter Mullen Automotive has carried out six reverse splits, the latest being a 1:100 swap. Despite aggressive asset acquisitions, its stock evaluated at nearly a complete loss this year. Mullen's market cap suggests an imminent liquidity challenge.
Exit TuSimple, Enter CreateAI
TuSimple, once a leader in autonomous truck development, has rebranded as CreateAI, realigning its focus towards anime and video game production—a cautionary takeaway on how reverse stock splits can precipitate drastic restructuring.
Briefly Noted
- A Lego Technic Mack LR Electric refuse truck model now joins Mack's refuse truck lineup in miniature form.
- The Shyft Group is combining with Aebi Schmidt to create a specialty vehicles leader.
- Schneider National surpasses 6 million zero-emission miles with its Freightliner eCascadias.
Discover more insights on Truck Tech, and don't miss the latest episodes of the Truck Tech podcast on our [YouTube channel](Help Center).
