A 2017 lawsuit shows how electric car startup Lordstown paid outside workers to gin up 10,000 pre-orders per year

Vice President Mike Pence at the Unveiling of the Lordstown Endurance_June 25, 2020
Vice President Mike Pence at the unveiling of the Lordstown Endurance.

  • A 2017 lawsuit shows how Lordstown Motors banked some pre-orders for its upcoming pickup truck.
  • The case reveals the company paid outside workers to generate up to 10,000 pre-orders per year.
  • Experts warn pre-orders and reservations are flawed measures of a startup’s potential.
  • See more stories on Insider’s business page.

Electric vehicle startup Lordstown Motors has been paying salespeople to secure pre-orders of its battery-powered truck prototype for at least five years – a practice that is outside the bounds of most startups without a sellable product – a little-noticed lawsuit from 2017 reveals.

In the suit, a former employee accused Workhorse Group, which Lordstown spun out of in 2019, of failing to pay him commissions he earned by logging over 8,000 pre-orders for the Endurance pickup truck now being offered by Lordstown. A recent report by Hindenburg Research noted the suit, but Insider is the first outlet to report its details and its implications both for Lordstown and the host of startups racing to meet growing demand for EVs.

Commissioning pre-orders is not illegal, but it should raise a major red flag for investors, said Gartner analyst Michael Ramsey.

While Lordstown’s practice appears unique in the EV startup world, experts warn that no matter how they’re collected, pre-orders and reservations aren’t great tools for predicting which young automakers will prosper. Because they’re typically non-binding, they don’t necessarily indicate what level of demand a vehicle will generate when it enters production. A startup’s success is better determined by its technology and talent than by a metric that hinges more on interest than intent.

Lordstown’s pre-order list ‘obviously does not indicate real demand’

Even with the electric vehicle market starting to grow, deep-pocketed investors are crucial to any startup. It takes billions of dollars to launch an automaker. The industry’s history is littered with failures, and most of today’s startups will likely flounder before their products hit the market, according to risk consulting firm Guidehouse.

To attract capital, many fledgling automakers use pre-order figures as a proxy for the demand their future vehicles will command. Tesla in particular has a long history of doing this. The problem is that these orders represent a consumer’s interest in actually buying the vehicle once it reaches the market – not their commitment to do so.

The fact that Lordstown paid commissions for bringing in these orders further undermines the figures’ credibility, Ramsey said. “It obviously does not indicate real demand,” he told Insider.

Lordstown Motors has been commissioning pre-orders for years

The idea for Lordstown Motors originated at Workhorse Group. In 2019, Workhorse CEO Steve Burns left the startup. He bought the patent for its electric pickup, along with thousands of pre-orders for it, and made it the basis for a new company, Lordstown.

Workhorse Truck
Workhorse Truck

Today, Lordstown boasts more than 100,000 pre-orders for the pickup. That’s impressive when compared to those for similar EV startups like Lucid Motors and Fisker, which have about 8,000 and 14,000 pre-orders, respectively.

In March, short-selling firm Hindenburg Research became the first to report on the questionability of Lordstown’s pre-orders, calling them “largely fictitious” and an attempt to “mislead” investors. The company’s stock fell 16% the day after the report was released and continued to slide.

At the time, Burns responded that the company has been transparent with the status of its orders. He also reiterated Lordstown’s plans to release the electric pickup truck in September.

Pre-orders were heavily incentivized

The 2017 lawsuit was filed against Workhorse by its former director of fleet sales, Jeffrey Esfeld. When he was hired in 2016, Esfeld said, he was tasked with securing up to 10,000 pre-orders per year. In just over a year, he logged more than 8,000 pre-orders, according to the court document. That number alone would account for over 8% of Lordstown’s current pre-orders to date. A Lordstown spokesperson would not confirm whether signatures gathered by Workhorse Group in 2016 are part of that total. (Esfeld declined a request for comment from Insider.)

Esfeld received a commission of roughly $30 per vehicle for each signed pre-order, according to the suit, on top of his $100,000 base salary. He would also receive a commission of 0.14% of the vehicle’s sale price for pre-orders that officially became sales. He was one of several employees that worked specifically on obtaining pre-orders for the truck.

During his time at the company, Esfeld was paid commissions for 3,050 vehicle pre-orders, from companies including Duke Energy and American Electric Power. (The case also notes Esfeld had been working to win over Amazon, which ultimately agreed to buy 100,000 electric delivery vans from Lordstown rival Rivian.) But, he alleged, after laying him off in 2017, Workhorse failed to pay him $440,707 he had earned in commissions, representing about 5,000 pre-orders, including from Ryder, one of Lordstown’s biggest pre-order signees to date. (He ultimately won the suit, and Workhorse paid him an agreed upon amount of $87,000 in damages and $32,245.02 in attorneys’ fees and costs.)

Steve Burns Workhorse
Steve Burns at Workhorse Group

The practice continued at Lordstown. In 2020, the startup hired consulting group Climb2Glory to commission orders, according to Hindenburg Research. On a page that was deleted after the short-seller’s report was released, Climb2Glory referenced how it helped Lordstown generate pre-orders.

Workhorse Group, Lordstown Motors, and Climb2Glory did not respond to requests for comment from Insider.

A questionable spin on a questionable practice

The Workhorse and Lordstown policy of paying commissions for pre-orders appears rare. “This is the first time I’ve heard of a start-up in that space doing anything like that,” Pitchbook analyst Asad Hussain told Insider. Comparable electric car startups, including Rivian, Lucid Motors, Fisker, and Nikola, do not pay commissions for pre-orders or contract workers to secure them, Insider found.

In recent automotive history, Elon Musk set the standard of using pre-orders to preview sales figures. “Tesla’s reservations taught the industry that this is a way to develop credibility with investors,” Ramsey said. But while it once charged $50,000 to pre-order a Roadster, it now asks a mere $100 from someone who wants a Cybertruck. That’s comparable to (usually refundable) reservation fees charged by the likes of Fisker ($250) and Lucid Motors ($300).

That lesson isn’t necessarily a good one, Ramsey said. “Investors need to think long and hard about the viability of the pre-orders that any of these startups are touting.”

Hussain told Insider that investors need to focus more on technology and execution, rather than “propaganda.” He thinks the Wall Street trend of using special-purpose acquisition companies to go public has put a lot of companies, like Lordstown Motors, in a position they’re not mature enough for yet.

Endurance electric pickup truck by Lordstown Motors
Steve Burns with Lordstown’s Endurance.

“The ability for early stage startups to go to market, even without revenue, creates a double-edged sword,” Hussain told Insider. “It allows everyday people to gain access to disruptive technologies like electric cars, but it also puts new companies and investors in a precarious position – how can they prove there will be demand for their product, without revenue? That’s where pre-orders can get tricky.”

For Lordstown, reliance on pre-orders has put it in the crosshairs of notorious short-seller Hindenburg Research. Just last fall, the same group released a damning report on Nikola that caused the company’s stock to plummet and its CEO Trevor Milton to step down. Currently, Lordstown is under investigation by the Securities and Exchange Commission for its pre-order practices. Its stock is trading at around $9, down from a high of $30 in February.

“A lot of these companies tout non-binding pre-orders or reservations,” Hussain said. “But, if you’re actually paying for them [the pre-orders] it does bring up some questions and it is not characteristic of the space.”

“The key question mark for many of these startups is: Can you actually get your factories up and running? Can you actually manufacture those vehicles?”

Mark Matousek contributed reporting.

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EV startup Lordstown Motors says it’s cooperating with an SEC probe after a short-seller alleged it misled investors

Endurance electric pickup truck by Lordstown Motors
Lordstown said it won’t share any additional information until it completes an internal review of the claims.

  • Lordstown Motors is cooperating with an SEC inquiry following accusations from a short-seller that the company misled investors.
  • The company created a committee to review the claims, CEO Steve Burns said Wednesday.
  • For 2020, Lordstown reported a $101 million net loss, sending shares down 3% in late trading.
  • See more stories on Insider’s business page.

Lordstown Motors said Wednesday that it is cooperating with financial regulators following a short-seller’s report that accused the electric-vehicle startup of misleading investors by overstating its order volume.

The Ohio-based upstart is complying with an information request from the US Securities and Exchange Commission, Lordstown’s founder and CEO Steve Burns said at the start of the company’s inaugural earnings call Wednesday.

Lordstown’s board of directors has also appointed an internal committee to review the short-seller’s claims, Burns said, adding that the company would not be able to share any more information until the group completes its audit.

Hindenburg Research, the same short-seller that leveled accusations of fraud against electric-truck firm Nikola in September, announced on Friday that it had taken a short position in Lordstown. Hindenburg’s claims that sparked an SEC investigation into Nikola eventually led its outspoken founder to resign and helped unravel a deal with General Motors.

Hindenburg said Lordstown has “no revenue and no sellable product” and accused it of misleading investors “on both its demand and production capabilities.” Lordstown was founded in 2018 and plans to manufacture a $52,500 electric pickup truck for fleet customers, the Endurance, at a former General Motors plant.

Read more: The 6 biggest things we learned about Nikola founder Trevor Milton from talking to dozens of his friends and colleagues

Although Lordstown claims to have 100,000 preorders for the pickup, Hindenburg said the company has artificially juiced those figures to boost its investor appeal. Hindenburg alleges that many preorder holders – including one company that reserved 14,000 units – never intended to follow through on a purchase, and that Lordstown paid consultants to drum up reservations.

“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,” the short-seller said.

A Lordstown spokesperson on Friday told Insider in an email that the startup “will absolutely be refuting” Hindenburg’s report in a future statement.

Hindenburg also alleged that Lordstown is years away from producing the Endurance, citing one former employee.

Lordstown reiterated on Wednesday that it is on track to begin producing the pickup in September, and said that interest in the model has been greater than expected. The company said it will produce several prototypes by the end of March, and that it is accelerating plans to build it’s second vehicle, a van.

Lordstown went public through a blank-check merger in October in a deal that valued the firm at $1.6 billion. It now has a market cap of roughly $2.5 billion.

On Wednesday, the company reported a net loss of $101 million for 2020. Shares fell about 3.3% in late trading following the release.

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Lordstown Motors plunges 23% after short-seller report says the EV SPAC has ‘no revenue and no sellable product’

Endurance electric pickup truck by Lordstown Motors
The Endurance.

  • Shares of Lordstown Motors fell as much as 23% on Friday after Hindenburg Research revealed it has a short position in the electric-vehicle maker.
  • The research firm said Lordstown has misled investors and has “no revenue and no sellable product.”
  • Shares are down roughly 25% since Lordstown Motors’ public debut via SPAC in October.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Shares of Lordstown Motors tumbled as much as 23% on Friday after short-seller Hindenburg Research said the electric pickup truck maker has misled investors.

The research firm said it had taken a short position in the Lordstown Motors after determining that it has “no revenue and no sellable product.”

Lordstown’s stock plunged to as low as $13.64 per share on Friday. The company went public via a SPAC in October amid a rush of other EV SPACs including Nikola, Hyliion, Canoo, and Fisker.

Hindenburg slammed Lordstown for misleading investors on both its demand and production capabilities. Lordstown said in January it had received more than more than 100,000 non-binding production reservations from commercial fleets for its EV truck.

“The company has consistently pointed to its book of 100,000 pre-orders as proof of deep demand for its proposed EV truck,” Hindenburg said. “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.”

Lordstown Motors is down roughly 25% since its public debut in October.

Screen Shot 2021 03 12 at 10.31.08 AM
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MicroVision skyrockets 50% after announcing progress on Lidar tech for self-driving cars

MicroVision Lidar rendering.
MicroVision Lidar rendering.

  • MicroVision announced progress on its Long-Range Lidar (LRL) Sensor on Thursday causing share prices to soar.
  • The company says it will meet its April milestone of completing A-Samples of the LRL Sensor.
  • Sumit Sharma MicroVision’s CEO says the company expects its censors to meet or exceed OEM requirements.
  • MicroVision’s stock has appreciated 1225% in the past six months causing short-sellers to take note.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

MicroVision stock skyrocketed as much as 50% on Thursday after the company announced it has made significant progress on its patented Lidar technology for autonomous vehicles.

MicroVision said it received the necessary components and equipment to meet its April milestone of completing A-Samples of its Long-Range Lidar (LRL) Sensor and it started outdoor testing of key performance features on its development platform.

“We expect MicroVision’s Long-Range Lidar Sensor, (LRL Sensor) which has been in development for over two years, to meet or exceed requirements established by OEMs for autonomous safety and autonomous driving features,” said Sumit Sharma, Chief Executive Officer of MicroVision.

MicroVision’s CEO also said he expects his company’s first generation Lidar sensor to have a range of 250 meters and “the highest resolution at range of any lidar with 340 vertical lines up to 250 meters, 568 vertical lines up to 120 meters, and 944 vertical lines up to 60 meters.”

Read more: BANK OF AMERICA: Buy these 7 online-retail stocks that are ‘structural winners’ set to build on strong 2020 gains – including one with 41% upside

MicroVision’s stock has gained 1,225% in the last six months and over 3,000% throughout the past year. The rapid rise in share prices for a company that doesn’t produce any significant revenues caused short-sellers to take notice.

In December Hindenburg Research blasted MicroVision calling the company a “corporate husk.”

“We are short $MVIS. In a market gone mad, this $1.2 billion market cap corporate husk with almost no revenue or intellectual property value is a standout.” Hindenburg Research tweeted

“It has risen 5,000% from lows this year on misguided retail euphoria over its LiDAR IP portfolio amid a broad EV bubble,” Hindenburg continued. “No one buys patents these days for any real money unless the patents have been put through the test of at least an IPR, our IP attorney told us.”

MicroVision claims its Lidar sensors are some of the best, most scalable products in the industry.

Read more: BlackRock says investors haven’t fully priced in the structural changes brought about by the pandemic – and pinpoints 2 areas of the market that can still run for years

“We expect the capability of our LRL Sensor to meet or exceed OEM requirements, based on technology we have scaled multiple times over the last decade, as being a very strong strategic advantage,” Sharma said. 

“Additionally, our sensor being designed on scalable silicon wafer and laser diode technologies will be capable of achieving scale at costs below $1,000 ASP, a key price point expected for commercial success,” added Sharma.

The company posted just $639,000 in revenue during the three months that ended in September and a net loss of $2.8 million.

MicroVision traded up 29.57%, at $18.14, as of 3:32 p.m. EST on Thursday.

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