[UPDATE: Lordstown Motors announced on June 14 that the CEO and CFO have resigned, and has released findings from an investigation into short seller claims.]
Lordstown Motors Corp. (LMC) acknowledged in a June 8 Form 10-Q filing with the Securities and Exchange Commission, that the automaker had “substantial doubt regarding our ability to continue as a going concern.” At best, managing costs and finding new funding will triage the recent battle wounds and allow the company to start commercial production on its Lordstown Endurance battery-electric pickup truck. At worst, the company could shut down and be sold off.
There are a lot of possibilities in-between, so don't write off LMC just yet.
A few things working against LMC include but are not limited to: the late filing of the quarterly report Q1 due to accounting discrepancies, a hit piece released in March by a short-seller called The Hindenburg Report that questioned the number of pre-orders cause LMC shares (Nasdaq: RIDE) to plummet, and the glut of pending pickup EVs, ranging from Tesla’s futuristic Cybertruck to Ford’s thoughtfully pragmatic F-150 Lightning.
LMC had $587 million on hand as of March and has an investor week at the Lordstown plant planned for the week of June 21.
This could be the last shot for LMC to regain confidence in the company and anchor product, the Endurance. And that truck, currently in beta testing, remains the biggest advantage for the company. It’s targeted towards commercial fleets and innovations such as its four in-hub motors, as well as its sleek design, distinguish it from many of its zero-emission pickup peers.
In a May statement, (now former) LMC CEO Steve Burns asserted: “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.”
As of now, Endurance production will be at best 50% of previous estimates, which in the wake of COVID-19 and supply chain disruptions, wouldn’t be all that bad. LMC is also seeking a federal Advanced Technology Vehicle Manufacturing loan, along with more tax credits and grants.
So maybe this is just the latest obstacle for the manufacturer to overcome. Maybe this is just the suspenseful part of the Lordstown region’s redemption arc, where adversity is met head-on and the underdog emerges victorious. That’s myopically optimistic, I know, but this crossroads where the East and Midwest merge in the Appalachian foothills needs a win in the worst way.
And America does, too. Lordstown is one of the many broken windows of the nation, and if we can’t fix cities like this that gave everything to help the country prosper, that does not bode well for the nation’s soul going forward. There seems to be progress made with Flint, Michigan’s water crisis, so sometimes the underdog does win.
Valley of tears
Ohio’s Mahoning Valley was once an unstoppable juggernaut of American industry, and due to collective corporate and union negligence, entropied into a capitalist cautionary tale. This forewarned the fall of America’s manufacturing dominance to Asia, and its current opioid crisis teases what’s in store for the rural towns across the nation should the economic recovery fail. Mahoning Valley’s 2018 opioid deaths more than doubled the U.S. average.
This is nothing new for Lordstown, which has seen plenty of tough times in the last 50 or so years, as the auto and steel industries slowly migrated to greener pastures (and lower wages) abroad. Even with the steel economy oxidized and the region decayed into the aching heart of the Rust Belt, the area never gave up hope, clinging to what it still had, such as one of General Motor’s crown jewels, the 6.2-million sq.-ft. Lordstown Assembly plant.
This plant, built in 1966, provided the area with much-needed job stability through the decades. Eleven years ago, when I covered the launch of the Chevy Cruze production, Jim Graham, the UAW Local 1112 president, told me each job at the factory created seven additional ones in the area. If the plant were to fold, 35,000 to 50,000 people would be impacted. In 2010, the city of Lordstown reported 70% of its tax base came from the plant’s productivity. All told, the Cruze production would generate up to $700 million in the local economy. The plant was running three shifts and optimism returned to Mahoning Valley.
Then, of course, in March 2019 GM closed the plant and five others in North America, to focus on the perceived future of transportation—electric vehicles. The area lost the remaining 4,500 jobs at the plant, though those employees were offered positions elsewhere. Ironically, it was an EV startup called Lordstown Motors Corp. (LMC), run by CEO Steve Burns, that wound up buying the plant and many of the equipment inside later that year. Burns had left his leadership role at Workhorse, which makes electric step vans, to form the new venture and produce the Lordstown Endurance electric pickup truck, with Workhorse providing some technical designs for a 10% stake in LMC.
GM also provided a $40 million loan to LMC, and according to The New York Times, has 7.5 million shares in LMC (Nasdaq: RIDE), which went public in Oct. 2020 after combining with DiamondPeak Holdings Corp., a special purpose acquisition company. GM also partnered with LG to build a $2.3 billion battery factory near its old plant.
Endurance unveiling
That reverse merge came four months after Lordstown publicly revealed the Endurance to a masked and socially distanced crowd and media at the plant.
GM leaving Lordstown had been a point of contention between President Donald Trump and GM CEO Mary Barra, and proxy Vice President Mike Pence was on hand at the event to stump for Trump’s 2020 election bid and keep national economic confidence high despite the fear and shutdowns wrought by COVID-19.
Pence, like many, was excited to anoint the Endurance as the valley’s savior: “The recovery is on,” the vice president proclaimed, “which makes it more timely and more appropriate to be here at Lordstown Motors, a part of the great American comeback.”
With a productive EV factory and the battery plant across the way, Mahoning Valley was starting to be dubbed Voltage Valley.
The vehicle was even invited to the White House in September 2020. When talking to reporters, Trump even called out by name the hub motors: “Everyone has wanted to do this, this is a great technology, they’ve known it, but until this, nobody’s actually done it—having the motors in each wheel. It’s an incredible concept.”
LMC soon went public and orders were rolling in.They even named promising Cincinnati Bengals quarterback Joe Burrow a brand partner.
LMC was riding high through the winter, even as its most vocal supporter, Trump, was ousted from office. Shares crested above $30 on Feb. 11. A month earlier the company announced it had received 100,000 non-binding reservations for the Endurance. Projected powertrain estimates put the truck’s range at about 250 miles per charge and with the electric equivalent of 600 hp, could tow 7,500 lb., so it certainly looked capable of a wide range of fleet work.
And with Joe Biden inaugurated as president on Jan. 20 and his administration set on reducing greenhouse gas emissions, it was likely electric vehicles would receive more incentives and subsidies than the existing $7,500 Plug-In Electric Drive Vehicle Credit.
“Adding in the interest we have from federal, state, municipal, and military fleets on top of that, I think you can see why we feel that we are about to revolutionize the pickup truck industry,” said Burns after announcing the Endurance had hit 100,000 pre-orders.
Then, as high hopes are wont to do in Lordstown, they came crashing down. Lucy had pulled the football away yet again, Charlie Brown.
March badness
On March 12, 2021, a short-seller called Hindenburg Research, which fancies itself an “activist” short seller, levied claims LMC was a fraud. Half a year earlier, Hindenburg deflated the ballooning excitement for Nikola Corp., which was developing heavy-duty battery-electric and fuel cell electric trucks, along with a pickup that could use either method, the Nikola Badger. Perhaps by coincidence, GM (which you’ll remember is closely tied to LMC) had just made an enormous manufacturing deal with Nikola a few days prior. Due to fraud and misconduct allegations, Nikola founder and chairman Trevor Milton left the company and GM scrapped plans to produce the Badger and drastically downsized its relationship with Nikola.
Its accusations toward LMC were not as serious as rolling a truck down a hill to simulate a working powertrain, but bad nonetheless: “Our research has revealed that Lordstown’s order book consists of fake or entirely non-binding orders, from customers that generally do not even have fleets of vehicles,” the report alleged.
Burns was labeled a P.T. Barnum-type figure and stock prices plummeted. The electric unveiling of the Endurance seemed like a lifetime ago. As an aide, brand partner Burrow had even suffered a season-ending ACL and MCL injuries. Things were not going well.
LMC, like its namesake city, kept plugging along. It really had no other option than through the muck, hoping the company had as much traction and tenacity as they say its truck does.
In late May, LMC reported 48 out of 57 prototypes were completed and the beta program would conclude in late June. Retooling at the plant was also progressing, and despite the volume being far lower than initially anticipated, the production start date of late September “remains on track.”
Testing at the the SCORE San Felipe 250 in Mexico's Baja region also yielded some promising results and showed where the engineering team needs to improve. LMC said of the off-road motorsport race: "We successfully navigated the extreme conditions over the first 40-mile leg of the race with all of our mechanicals meeting or exceeding our expectations. While we anticipated significantly higher energy demand from this environment—the reality of the terrain proved to be even more demanding"
Power consumption was four times the normal level, and in the second leg rife with elevated, mountainous terrain, the Endurance had to bow out due to charging concerns.
It’s important to note certain media have a penchant for salacious headlines, so The New York Times’ “Electric truck start-up Lordstown doesn’t have cash to begin production” is misleading at best. Fox Business also reported: “Lordstown Motors says it doesn’t have cash to start commercial production.”
The capital issues are far more nuanced than either headline, or a dozen others, indicate, and potential customers and investors should probably read the SEC filings for themselves before rushing to judgment. They should also take into consideration that starting up an automaker is really, really hard. Ask Elon Musk. And even with everything going your way, manufacturing disruptions may occur. The Tesla Semi was supposed to hit the market in 2019 and it’s doubtful production will start this year, with Tesla’s head of heavy-duty tucking Jerome Guillen leaving the company June 3.
Tesla does not have a public relations department anymore, so we’re left wondering what that all means. LMC does have a PR department, and it is quite responsive.
In an email to FleetOwner, an LMC spokesperson stated:
“While we have adequate capital to continue operations, meet supplier obligations and begin limited production, we previously indicated that we may need to raise additional capital to support our ongoing production plan. The update we provided on our most recent earnings call—and in [June 8’s] updated SEC filing—indicated that increased R&D spending due to COVID-related supply chain issues and the strategic decision to in-source production of certain parts simply means we now have confirmed that we will need that additional funding in the near term to ramp to commercial production levels.
Having said that, we are debt free, have significant tangible assets and multiple viable avenues to raise capital, including asset-backed financing, equity, equity-related or debt financing, loans (including our in-process application for an ATVM loan), as well as potential strategic investments over the longer term. We are already in active conversations with multiple parties to do so.
We remain fully committed to our goal of producing the first and best full-size commercial EV pickup truck, and we are incredibly excited to be welcoming many of our customers, partners, investors and others to Lordstown in two weeks to see for themselves the progress we have made.”
So there you have it. LMC still has some fight left in it, though that is not a guarantee even one Endurance will roll off the line this year. It does give the city of Lordstown, and the entire Voltage Valley, a puncher’s chance among a crowded field of contenders. And for a place used to getting knocked down and getting back up, that’s all you can really hope for.
Check back later this month for our report from Lordstown Week.
