Lordstown Motors Deathwatch: EV Startup Loses CEO
Starting a car brand has to be among the more foolhardy endeavors one can embark upon. The industry is saturated with giant, multinational companies that don’t want competition and a regulatory environment that requires a ludicrous amount of wealth and plenty of time to overcome. Despite this, we’ve seen countless electric vehicle startups attempting to accrete into something profitable over the last few years. But even the winners have found themselves wholly dependent upon government-backed. carbon-credit schemes or blank-check firms designed to guarantee their IPOs are astronomically high — often before they’ve shown a functional prototype.
This makes distinguishing a company with potential from those that are dead on arrival incredibly difficult. Though it’s getting easier to see which side of the fence Lordstown Motors will be occupying after a particularly grim string of months. One of its prototypes spontaneously combusted during testing last March, at roughly the same time Hindenburg Research was accusing it of fraud. More recently, the business lost CEO Steve Burns and confessed that it was in desperate need of money to start production.
The company announced Burns’ departure on Monday, stating that CFO Julio Rodriguez had also left the business. Angela Strand (lead independent director) has been appointed executive chairwoman of the business and Becky Roof will take over as interim CFO. Lordstown stated that it would be seeking to replace both positions but we already know that this is likely to send the business into a protracted death spiral. It’s kind of a shame, too. Because there was a stretch where the EV startup looked to have a decent chance of becoming a real automaker — one that it was supposed to create jobs for a region of the country that undoubtedly could have used them after Chevy Cruze production ended.
Created by Steve Burns (former CEO of Workhorse Group) in 2018, Lordstown Motors shares its name after the shuttered production facility it purchased from General Motors in 2019. The deal had 40 million come from GM to underwrite a substantial part of the plant’s purchase and was followed by a $12 million agreement that allowed the company to lease some of the intellectual property associated with Workhorse’s electric pickups.
By 2020, Lordstown entered into a reverse merger with special-purpose acquisition company (SPAC) DiamondPeak Holdings, resulting in an estimated equity value of $1.6 billion. The following months were supposed to be devoted to preparing the factory for assembly but 2021 launched with plenty of bad news for the startup.
The Ohio-based company had been discussing the merits of California for some time and announced it would be opening a service center in Irvine, California. While the January announcement was noncommittal, former and current staffers started to suggest the company might relocate to the region. At the same time, Lordstown issued a press release praising California for the “favorable regulatory backdrop in the state, which is aggressively promoting more widespread adoption of electric vehicles.”
This created rampant speculation that quickly gave way to more unflattering media attention. After kicking off the year by announcing it had exceeded 100,000 pre-orders for the Endurance light-duty, all-electric pickup, Lordstown Motors became the target of Hindenburg Research. The notorious short-selling research firm released a report questioning the legitimacy of those orders and the company’s true ability to manufacturer anything by the claimed September target. The in-house battery claims also turned out to be largely fictitious and one of its prototypes ended up catching fire.
May ended with the company stating that it would be required to cut its existing production estimates, with news trailing into June about how it desperately needed more money. Now, its CEO appears to be abandoning ship as Lordstown Motors’ already crippled share price takes another 12 percent dip.
“We remain committed to delivering on our production and commercialization objectives, holding ourselves to the highest standards of operation and performance and creating value for shareholders,” stated Strang. “Along with the management team, I will continue to work closely with them and the Board to execute on Lordstown’s vision for the future of electrified transportation. I am excited to lead the passionate and dedicated team of Lordstown employees and to work with our valued customers, suppliers, investors and partners and to hosting Lordstown Week, which commences on June 21st.”
Something tells us Lordstown Week might be mildly depressing. We’re hoping we’re wrong and the company turns things around and creates a bunch of new jobs for Ohioans. But our gut is telling us to keep this one on deathwatch until after it decides whether or not it can commence production in the fall.
[Image: Lordstown Motors]
Wolfwagen on Jun 15, 2021
From Hindenberg Research: -Lordstown is an electric vehicle SPAC with no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities. -The company has consistently pointed to its book of 100,000 pre-orders as proof of deep demand for its proposed EV truck. Our conversations with former employees, business partners and an extensive document review show that the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy. -For example, Lordstown recently announced a 14,000-truck deal from E Squared Energy, supposedly representing $735 million in sales. E Squared is based out of a small residential apartment in Texas that doesn’t operate a vehicle fleet. -Another 1,000-truck, $52.5 million order comes from a 2-person startup that operates out of a Regus virtual office with a mailing address at a UPS Store. We spoke with the owner who acknowledged it won’t actually order any vehicles, instead describing the “pre-order” as a mere marketing relationship. -Yet another firm that is supposedly set to buy 500 trucks from Lordstown told us: “…The letters of interest are non-binding. It’s not like you’d obligate yourself to a pre-order or that you would contractually bind yourself to buying this truck. That’s not what they are.” -Lordstown CEO Steve Burns has called these arrangements “very serious orders”. The actual customer agreements, which we present for the first time today, require no deposit and are non-binding. Many of the supposed customers do not operate fleets nor do many have the means to actually make the stated purchases. -Former employees and litigation records reveal that in order to raise capital and confer credibility, Steve Burns began paying consultants for every truck pre-order as early as 2016 while he was serving as CEO at Workhorse. -Later, heading into Lordstown’s eventual go-public transaction in 2020, a small consulting group called Climb2Glory was paid to generate pre-orders. Climb2Glory openly described the purpose behind the pre-order game: “the faster the pre-orders arrived, the greater investors’ confidence would be in the company and the faster funds would flow in.” -One company rep that committed to buy 40 trucks through Climb2Glory told us: “…I’m not committed to anything, not to buying a single vehicle. I committed to consider buying vehicles. I’d have a lot of questions before I commit to anything.” -Others had similar remarks. “The commitment of that size (15) is totally impossible,” a representative for the City of Ravenna told us about its pre-order. We document numerous other “customers” that disclaim any intent to actually purchase vehicles. -Multiple former senior employees who have worked with Lordstown Founder & CEO Steve Burns openly described him as a “con man”, or a “PT Barnum” figure. One senior employee told us that, while working with Steve for a couple of years, they saw more questionable and unethical business practices than they had seen in their entire career. -Despite being allowed to resign from Workhorse, former senior employees described how Burns was pushed out of his old company by the board for wasting R&D money and missing promised deadlines. He then launched Lordstown months later. -Despite claims that Lordstown will be producing vehicles by September, a former employee explained how the company is experiencing delays and making “drastic” design modifications, putting them an estimated 3-4 years away from production. For example, in mid-January the company “totally switched from a plastic exterior to aluminum,” we were told. Despite claims that battery packs would be manufactured in-house, we were told that the equipment is months away from arriving, let alone being put into a production environment. In the meantime, we were told that battery packs are being put together by hand. -Former employees also shared that the company has completed none of its needed testing or validation, including cold weather testing, durability testing, and Federal Motor Vehicle Safety Standards (FMVSS) testing required by the NHTSA. -In January 2021, Lordstown’s first street road test resulted in the vehicle bursting into flames 10 minutes into the test drive. We share copies of the 911 call and a police report we received through FOIA requests. Lordstown only went public in October 2020, but in that brief time, executives and directors have unloaded ~$28 million in stock. We think it bodes poorly when executives unload stock in a company with no actual product that claims to be on the cusp of mass-production. -We think investors, workers, and the local community deserve much more transparency on what is going on at Lordstown. We ask 21 questions at the end of our piece that we think the company should answer.
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