Lion Electric's Restructuring: A Path to Recovery or a Dead End?

Lion Electric, a leading manufacturer of all-electric medium and heavy-duty urban vehicles, has announced a significant restructuring plan, including a temporary layoff of approximately 150 employees. This move comes amidst the company's ongoing financial struggles and its recent application for creditor protection under the Companies' Creditors Arrangement Act (CCAA).

The layoffs, representing about 10% of the company's total workforce, are part of a broader plan to align costs with current demand. Lion Electric has also announced other measures to reduce costs, such as ramping down production of electric trucks, creating a new product line to sell its battery packs to third parties, and potentially leasing out a significant portion of its plant in Joliet, Illinois.



The company's financial struggles are evident in its recent financial statements. In the second quarter of 2024, Lion Electric reported a net loss that ballooned by 63% to US$19.3 million, and revenue dropped by 48% to US$30.3 million compared to the previous year. Additionally, the company delivered 101 vehicles in the second quarter of 2024, a drop of nearly 50% year-over-year.

Lion Electric's CEO, Marc Bedard, has attributed the company's financial difficulties to a volatile incentive environment, which has slowed down the pace of orders and deliveries. The company's reliance on government grants, such as the federal Zero Emission Transit Fund, has been crucial for securing orders and maintaining its operations. However, delays in the granting of these subsidies have led to a slowdown in orders and deliveries, which in turn has impacted the company's financial performance and workforce.

The CCAA protection and restructuring process can have both positive and negative effects on Lion Electric's ability to secure new financing and investments. On the one hand, the CCAA process provides Lion Electric with temporary protection from creditors, allowing the company to focus on restructuring its operations and seeking new financing without the immediate threat of lawsuits or forced liquidation. Additionally, the CCAA process includes a sale and investment solicitation process (SISP), which provides interested parties with the opportunity to submit proposals for the company's business or assets. This process can help Lion Electric attract potential investors or buyers who may be willing to inject much-needed capital into the business or acquire certain assets, thereby improving its financial situation.

On the other hand, the CCAA process can also present challenges for Lion Electric. Trading in the company's common shares and other listed securities has been suspended on both the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). This suspension can make it more difficult for the company to raise capital through equity offerings, as potential investors may be hesitant to invest in a company with suspended trading. Additionally, both the TSX and the NYSE have initiated delisting reviews and proceedings against Lion Electric, which could result in the company's delisting from these exchanges, further limiting its access to capital markets and potential investors.

In conclusion, Lion Electric's restructuring plan, including the temporary layoff of 150 employees, is a significant step in the company's efforts to address its financial difficulties and secure its long-term survival. However, the success of this plan will depend on various factors, such as the company's ability to secure new financing and investments, the outcome of the CCAA process, and the broader economic and market conditions. Investors should closely monitor Lion Electric's progress and consider the risks and opportunities associated with the company's restructuring efforts.