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Electric Last Mile – It’s Gone, Bankrupt, Might Well Go To Zero

Trade Electric Last Mile Shares Your Capital Is At Risk
Updated 13 Jun 2022

Key points:

  • Electric Last Mile is filing for Chapter 7 bankruptcy
  • It's highly likely there will be nothing for stockholders
  • Barring amazements we'd therefore expect the stock to go to zero

Electric Last Mile (NASDAQ: ELMS) stock might well be entirely valueless now. The company has announced a move into Chapter 7 bankruptcy. This is not the Chapter 11 type, where after a bit of restructuring, the company returns. Rather, this is the complete dissolution kind where there is no company left at the end of it all.

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We can also take this as guidance on some of the other EV makers. Yes, some will indeed succeed, but there is a number who are likely to do this- go into full bankruptcy.

This is not some random change where a heavily indebted company finally meets the one bill that breaks that camel's back. Rather a new management team was installed in Feb to work through the strategic alternatives for the company. The answer they've come back with is that there are none.

This also comes on the heels of their internal little scandal. The reason the previous management was replaced was a lack of faith in strategy. When the old management did leave, ELMS had to restate past results – not a good sign at all.

Also Read: The Best Electric Car Stocks to Buy

As we say, the net result of all the chin-stroking over what to do next the answer is, apparently, nothing. So close the company done and liquidate all of the assets.

The only final question for use shareholders out here is whether there's going to be anything left for equity after the bankruptcy. The order of editors is secured debt, unsecured debt, only then equity. So, if there's not enough money to pay off the creditors, then there definitely won't be anything left for equity holders.

Further, a Chapter 7 bankruptcy normally is a sign that there's nothing there for the equity. For if there were, then it would have been – perhaps – possible to raise more capital to keep the show on the road.

So, our assumption might well be that Electric Last Mile stock is going to zero, and that's that. Except, obviously, there've been some fun times recently with meme stocks. Both AMC and GameStop were effectively rescued by that status. Gamestop particularly, there was so much of the stock shorted that a short squeeze could be orchestrated and was. The company was then able to issue new stock and now has the capital to undertake the previously planned transformation.

Or we might think of Hertz, which was actually in bankruptcy and was still able to issue new stock. That is, there's more going on out there in the markets than we might think. In the old days, we would have said, when a company filed for Chapter 7, “Stick a fork in it, it's done”. For that was the point of no return, debts were likely larger than assets – otherwise, why bankruptcy – and so there was nothing left for stockholders.

Now, this is probably true – OK, almost certainly. But now that we've seen a couple of companies manage these Houdini-style escapes, who knows when and where the next one will turn up? That is, there still could be value in ELMS stock, but it's most, most unlikely. As opposed to impossible.