Lordstown Motors Corporation (RIDE) is an American electric vehicle manufacturer. On October 23, 2020, Lordstown reverse merged with DiamondPeak Holdings, a special-purpose acquisition company (SPAC), and was listed on the NASDAQ. The company said in a quarterly filing with the United States Securities and Exchange Commission on June 8, 2021, that it did not have enough money to begin commercial production of its vehicle and cast doubts over its ability to continue as a going concern in the coming year due to funding issues, causing its stock to plummet. Lordstown wrote:
“The company believes that its current level of cash and cash equivalents are not sufficient to fund commercial-scale production and the launch of sale of such vehicles. These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year.”
Lordstown Motors Corp announced on June 14 that its CEO Steve Burns and CFO Julio Rodriguez had abruptly resigned. The company’s board of directors announced the resignations of the two executives following the result of an internal inquiry into charges made by short-seller Hindenburg. Hindenburg announced in March that it had taken a short position in the stock, claiming that the company had deceived consumers and investors. Hindenburg labeled the 100,000 preorders for Lordstown’s vehicle “fictitious” in a March report. Lordstown admitted it misrepresented the quality of pre-orders for its electric trucks but dismissed claims that it overstated the technology’s feasibility and deceived investors about production plans.
Lordstown stock fell 18.8% to $9.26 on June 14 following the resignation of the executives. This year, the stock has lost 54% of its value. According to Adam Jonas, a Morgan Stanley analyst, Lordstown could see more selling pressure because of “potential stock disposals” by Burns, the company’s single largest shareholder with a 26.5% holding.
Lordstown faces financial turbulence
In its first-quarter report released on May 24, the company showed a weakened liquidity profile. It recorded a wider loss of $125.2 million compared to the loss of $101 million in 2020. The loss per share was 72 cents, compared to analyst expectations for a loss of 28 cents for the first quarter. Lordstown reported a $106 million operating net loss with $14 million in selling and administrative expenses and $92 million in R&D, including $1.9 million in stock compensation costs. Steve Burns, ex-CEO of the company said:
“The higher than expected R&D expense is largely from higher part costs from a supply chain that remains under duress from COVID issues and which impacted our beta costs.”
Lordstown had $587 million in cash at the end of the quarter.
Burns also commented on the successful Beta testing of the vehicles and said:
“We are incredibly satisfied with beta vehicle test results so far. We recently passed two of the most difficult crash tests and, as such, believe we remain on track to deliver a 5-star rated vehicle. We were also pleased with the mechanical performance of our Endurance at the San Felipe 250 race in Baja, Mexico last month, despite challenges that arose in predicting energy usage in the Mexican desert.”
Commenting on the current financial issues and the company’s outlook, Steve Burns said:
“However, we have encountered some challenges, including COVID-related and industry-wide related issues, as we progress towards our start of production deadline. These include significantly higher than expected expenditures for parts/equipment, expedited shipping costs, and expenses associated with third-party engineering resources. We secured a number of critical parts and equipment in advance, so we are still in a position to ramp the Endurance, but we do need additional capital to execute on our plans. We believe we have several opportunities to raise capital in various forms and have begun those discussions. We would be pursuing a conservative budget, reducing costs and delaying investments and the production would start. In September would be at best 50% of the prior 2021 unit expectations. We are currently in discussions for an asset-backed financing opportunity that is at the preliminary stage. In addition, we also remain in due diligence for an application for the ATVM loan. Furthermore, we intend to engage in discussions with strategic investors and we continue to seek and pursue opportunities in other tax credits and grants across multiple jurisdictions,”
The company has a long way to go to secure its financial future, and profitability seems decades away at this point in time.
Results of the special committee investigation of Hindenburg claim
The Hindenburg Research Report raises doubts on Lordstown Motors’ plan to start production of its Endurance pick-up truck in September 2021, but the Special Committee found that, while different circumstances could cause delays in manufacturing, the September 2021 start date can still be achieved. Furthermore, the report says that Endurance’s hub motor technology, which was licensed from Elaphe, is not viable, which the Special Committee determined to be untrue. The investigation report included:
“The Endurance was engineered to address the unsprung vehicle mass attributable to in-wheel motors, including through tuning of the suspension, reinforcing the vehicle structure, and utilizing a heavier truck chassis. These measures are expected to alleviate any ride or durability issues that might otherwise arise.”
However, the committee confirms that periodic statements regarding the company’s pre-orders were misrepresented. It said, “Lordstown Motors has stated on several occasions that its pre-orders were from, or “primarily” from commercial fleets. In fact, many pre-orders were obtained from (i) fleet management companies or other end users that indicated interest in purchasing Endurance trucks, similar to commercial fleets, and (ii) so-called “influencers” or other potential strategic partners that committed to attempt to secure pre-orders from other entities, but did not intend to purchase Endurance trucks directly.”
Lordstown’s stock dropped after the company said in a regulatory filing that there is “substantial uncertainty” about its ability to continue operating as a going concern for more than a year. The company claims to be in the process of obtaining further funding, but things are looking bleak right now and investors seem to be worried about the company’s ability to generate funds. Lordstown remains a speculative bet for the time being, following the first-quarter earnings shock and the resignation of 2 key executives.
The author does not own any shares mentioned in this article.
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