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The Lordstown Motors fiasco - a stark reminder

Written by Theo Koenig – June 17, 2021

Reviewed by Asaf Kedem

Back in 2018, the former Workhorse CEO, Steve Burns, left the company to create another electric vehicle venture: Lordstown Motors (Nasdaq: RIDE). The company took over the shut-down General Motors plant in Lordstown, Ohio, where production of the Chevy Cruise used to take place. Some 4,500 workers were set to be laid off before the electric start-up stepped in to purchase the plant for $16 million, courtesy of a loan from GM themselves. The company began gaining national attention for their all-electric pickup called the Endurance, with Former U.S. President Donald Trump taking personal interest and Former Vice President Mike Pence making a visit to the site.

Amid peak interest and with the company announcing pre-orders of 100,000 for the Endurance, Lordstown Motors merged with a Special Purpose Acquisition Company (SPAC) DiamondPeak Holding Corp. For our less financially versed readers, a SPAC, often-times referred to as blank-check company, is a corporation that has no defined business plans (holds nothing but cash) and is formed strictly to raise capital by acquiring existing companies and taking them public through Initial Public Offerings (IPOs). The concept has been around for quite some time and is gaining popularity in the automotive industry with notable examples being Nikola Motor, Fisker Inc, and Canoo. The love relationship between SPACs and electric start-ups stems from the fact that going public with a SPAC allows the underlying company to side-step the traditional IPO procedures, which means less disclosure and bypassing the rigorous Securities and Exchange Commission (SEC) reviews.

To cut a fairly long story short, Lordstown Motors were able to raise $675 million in financing and became publicly traded in October 2020, with minimal scrutiny.

Things turned sour on March 12th, 2021, however, when Hindenburg Research published a scathing report exposing the supposed 100,000 orders for the Lordstown Endurance vehicle. Previously known for uncovering massive fraud at Nikola Corp., Hindenburg Research alleged that thousands of orders were found to be non-binding, and having been placed without requiring a deposit. In essence, a large portion, maybe even the majority, of the Endurance pre-orders were likely never to be filled. The stock price hit an all-time low of $6.98 on May 13th, 2021.

Skip forward to last Monday and CEO Steve Burns and several other top executives resigned after an investigation by the company’s board. Lordstown Motors then stated in a securities filing that it didn’t have enough money to begin mass production and might not survive.

With things looking bleaker than ever, Lordstown executives attempted to restore confidence by announcing that the company is set to go through with production plans starting in September of this year. The company will fill whatever “binding-orders” currently exist and, according to Lordstown president Rich Schmidt, Lordstown is predicted to have enough cash-reserves to last until May 2022. By then, sales of the Endurance should begin to offer a source of revenue. Over the next 24 months, the company hopes to produce over 15,000 Endurance vehicles.

The icing on the cake is the fact that the Endurance has yet to pass the safety and engineering tests required for vehicles to be sold in the United States. According to the latest investor report issued by Lordstown, the airbag, durability and brake testing will all continue until at least November 2021. In fact, investigations by Hindenburg Research uncovered that testing of an Endurance prototype led to the vehicle becoming completely engulfed in flames in early January 2021. Though the company attributed the malfunction to human-error, it certainly does not bode well for a vehicle that will have to be held for testing and modifications once it rolls off the assembly line.

Auto Trendy’s take:

It has come down to a question of survival for Lordstown Motors. They have an incredible amount of work to do, with very little time. The company was until now only in its research and development stage, and although production was always planned for September, few truly believed the company would attain that target. The company will hope that the vehicle prototypes are reliable and that no changes will have to be made once production starts. Another company deciding to invest to put out the flames seems rather unlikely, at least not until there are signs of revenue from sales. We feel rather disappointed, given that the designs for the pickup were actually rather impressive. If nothing else, the company’s current state should serve as a stark reminder to investors looking to jump into the electric vehicle frenzy.

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