Volcon, VLCN, drops 33% on fairly desperate piece of cash raising

Volcon (NASDAQ: VLCN) stock dropped 33% this morning on a bit of capital raising. Which isn't that unusual, more stock in issue usually does mean a lower stock price - simply supply and demand there. However, the money raised was actually in a convertible bond issue and that's a little different. The terms of the money raise still matter though and the general market reaction is that this money is expensive. But then when you need money, well, you need money.

For those who don't know Volcon manufactures electric off road vehicles -  bikes and quads and so on. It's entirely possible that there will be winners in this field just as Tesla has done so well in electric cars. But also as Lordstown, Rivian, Nio and so many others are showing it's not all that easy to do so. But we're at steam engine time again, there's a massive technological shift going on and all we as investors out here can do is try to predict who are going to be the  - few - winners of this change.

Volcon stock price from NASDAQ

Looking at the last accounts they seem to have about $4 million in cash and lose $7 million a quarter. That means that gaining access to more cash is really rather important to them. And swiftly, soo. So, they have a deal to issue convertible notes to a private investor. That brings in the cash - $32 million or so - which keeps the show on the road for a year and a bit at the current burn rate. But of course a note is repayable - this is an increase in the debt burden of the company. Debt ranks ahead of equity in any wind down. So, the equity now has less of a claim on the corporate assets as a result of the deal. True, the shares might climb back to that conversion price - $1.09, Friday's prevailing price - by the time the notes need to be repaid. But that's not certain, of course it's not. So Volcon has rather mortgaged that future in the hopes that something will turn up in the interim. It's not that difficult to see why the VLCN stock price has fallen as a result.

Sure, it's possible that the electric quad bike market roars ahead in the coming 12 months and that Volcon is able to supply it. But that's what the bet is, that it will.