On the same day, the company released the results of its internal investigation into the short-seller’s allegations. It said that while it didn’t find any issues with the vehicle or its technology, Lordstown Motors had caused confusion about the demand for its electric truck. The internal investigation found that some preorders – letters of intent that require only a signature – had been secured from companies that did not intend to purchase the vehicle, while other companies that had signed letters of intent did not have enough capital to purchase it.
On June 15, Lordstown Motors’ President Rich Schmidt said the company had remedied the issue and had “basically binding” pre-orders. That same week, the company clarified that none of its pre-orders are binding.
Lordstown Motors has also been questioned for its executives’ trading after five Lordstown executives sold large portions of their stock ahead of the release of a lackluster financial report from the company that sent shares downwards.
The company has said it plans to start limited production of its electric pickup truck in September, though the company has already delayed the launch of the vehicle five times.
Shares of Lordstown Motors have plunged roughly 50% since the electric vehicle company went public via a SPAC in October.
In March, short seller Hindenburg Research published allegations that Lordstown had fabricated preorder numbers for its electric truck to generate hype.
The US Securities and Exchange Commission first requested information from Lordstown in February and has issued subpoenas regarding the company’s move to go public and its representations about preorders. Lordstown Motors has said it is cooperating with the SEC’s investigation.
Then, at a press event on Tuesday, Lordstown President Rich Schmidt contradicted the company’s earlier position when he told the media that preorders for the Endurance pickup truck were “binding,” and were likely to cover all the vehicles the company could produce in 2021 and 2022.
“Those are firm orders we have for those two years,” Schmidt said. “They are basically binding orders that are committed here in the last two weeks.”
Lordstown’s share price went up by as much as 15% after his remarks.
But in regulatory filings on Thursday, the company reversed Schmidt’s public statements, saying that while the purchase agreements are an indicator of customer demand, “these agreements do not represent binding purchase orders or other firm purchase commitments.”
“To date, we have engaged in limited marketing activities and we have no binding purchase orders or commitments from customers,” the company said.
Lordstown previously said it has more than 100,000 preorders that were worth a total of $1.4 billion, before warning that it could run out of cash before ever starting production.
The company’s internal investigation found on some occasions its fleet preorders were from “influencers” who “did not intend to purchase Endurance trucks directly,” and that one entity “did not have the resources to complete large purchases of trucks.”
Even so, the report states Lordstown still has tens of thousands of fleet preorders and other end-users that will constitute “substantially all” of the company’s production through 2022.
Lordstown’s special committee said that while it didn’t find any issues with the vehicle or its technology, the company had caused confusion about the demand for its electric truck; Lordstown had repeatedly said it had over 100,000 preorders for its $52,500 Endurance pickup truck.
“Lordstown Motors made periodic disclosures regarding pre-orders which were, in certain respects, inaccurate,” the report said.
The internal investigation found that some preorders – letters of intent that require only a signature – had been secured from companies that did not intend to purchase the vehicle, while other companies that had signed letters of intent did not have enough capital to purchase it.
The release of the pickup truck has been delayed five times since Lordstown’s predecessor, Workhorse Group, introduced the concept.
That going-concern notice raised doubts about whether Lordstown would be able to stay in business without more funding. A spokesperson told The Wall Street Journal that it was securing more funding and that it did not expect to delay production.
The company said on Monday that it was looking for permanent replacements for the two executives. In the meantime, Angela Strand will serve as its executive chairwoman and Becky Roof as its interim CFO. Strand has worked with Burns since 2017: She was the vice president of Workhorse Group, Burns’ former startup, according to her LinkedIn.
Chief Executive Officer Steve Burns resigned from his position as CEO and board member, and Chief Financial Officer Julio Rodriguez resigned from his post, according to a company press release. Both are effective immediately.
The company appointed Lead Independent Director Angela Strand as the executive chairwoman to oversee the CEO transition until a permanent leader is identified, the company said. Becky Roof will serve as the interim Chief Financial Officer.
“As we transition to the commercial stage of our business – with planned commencement of limited production in late-September – we have to put in place a seasoned management team with deep experience leading and operating publicly-listed OEM companies,” the company said in its release.
Shares of the Lordstown, Ohio-based electric vehicle startup fell below $10 Thursday, meaning the stock has lost about half its value so far this year.
In 2019, the company purchased a former General Motors plant in Ohio to start producing the Endurance electric pickup this fall. But last week, the company told shareholders it might not have enough cash to start commercial production of its pickup this year, and it had “sufficient doubts” as to whether it would be able to meet its financial obligations.
Electric-vehicle startup Lordstown Motors warned Tuesday that it may not have enough cash on hand to start producing its debut pickup truck at scale.
The going-concern notice added to the company’s regulatory filings indicates that Lordstown doubts it will be able to meet its financial obligations over the next year. It said its ability to do so largely depends on whether or not it can finish developing the Endurance pickup and begin commercial production, which it may not currently have the funds to do.
“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,” it said.”These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed consolidated financial statements.”
Shares of the company plummeted more than 16% in late trading Tuesday.
The company in 2019 purchased a former General Motors plant in Lordstown, Ohio and said it would start mass producing the Endurance, a fleet-oriented electric pickup, this fall. But on a conference call in May, Lordstown CEO Steve Burns said the company would need to raise more capital to produce the 2,000-plus units it intended to by the end of 2021, and that it may need to lower production targets.
Lordstown raised $675 million when it went public last August, but said it expects to end 2021 with between $50 million and $75 million in its coffers, down from prior forecasts.
The warning also comes months after short-seller Hindenburg Research published a lengthy report alleging that Lordstown took in fraudulent preorders and misled investors.
Lordstown Motors shares tumbled Tuesday after the company severely cut its annual production guidance and said it needs to raise more money as it aims to start production on its electric pickup truck this year.
The company late Monday said it remains on track to begin producing its Endurance truck in late September, at limited capacity.
“However, we have encountered some challenges,” the company said. These include significantly higher-than-expected expenditures for parts and equipment.
It said it needs additional capital to execute on its plans and projected having $50 million-$75 million in cash and cash equivalents at the end of the year, which is less than the $200 million it projected in March.
Shares of the company dropped much as 19% to $7.88 as Tuesday’s session got underway. The shares have pulled back from a mid-February high to register losses of roughly 51% so far this year.
Lordstown forecast Endurance production this year would be “at best” 50% of its previous expectations.
The EV startup for the first quarter ended March 31 posted a loss of $0.72, wider than the loss of $0.16 per share a year ago.
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.
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.
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.)
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.
“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?”
Shares of Fisker and Lordstown Motors dropped Thursday after Goldman Sachs downgraded the ratings of both electric-vehicle makers. The firm cited increasing competition and concerns about product timing.
Fisker was cut to sell from a neutral rating, and its 12-month price target was lowered to $10 from $15. Lordstown was cut to a neutral rating from buy, and while its target was cut to $10 from $21.
Fisker dropped as much as 12%, while Lordstown lost 5% at intraday lows.
Goldman said the downgrades come as multiple companies including General Motors, Ford and Volkswagen plan to accelerate their transition toward EVs as they seek to completely exist the internal combustion engine market.
Meanwhile, the firm noted that several big tech companies such as Apple, Xiaomi and Baidu are considering a larger role in the auto market with a branded product, or through a collaboration with an original-equipment manufacturer.
“Established EV OEMs such as Tesla are also scaling quickly,” said Goldman Sachs equity research analysts led by Mark Delaney. “Several of these companies are committing billions of R&D dollars to both powertrain technology and software.”
For Fisker specifically, Goldman said while it appreciates the steps it’s taking to try to differentiate its upcoming products “we are incrementally concerned about what we believe is the company’s late time to market … as competition increases.” Fisker is preparing to enter the EV industry in the fourth quarter of 2022 with its Ocean SUV.
The bank pointed out that Fisker has announced a plan for a “unique follow-on vehicle” with Apple supplier Foxconn that could enter the market around the fourth quarter of 2023. However, “by the time this vehicle may be ramping, the competitive landscape could be even more challenging (including the potential for new big tech entrants via partnerships).”
On Lordstown, Goldman said it’s “now more cautious on the ramp for the Endurance truck,” after the vehicle ran out of battery after about 40 miles during an off-road race in Baja California, last week. That “suggests to us that there could be more development work to do on the powertrain than we had expected,” said Goldman.
“This factor, coupled with the global auto supply chain challenges that are making it difficult to obtain parts, could increase the probability that the company’s market entry will be delayed and/or could occur at a more measured pace than we had expected,” said the bank, adding that Lordstown is aiming to start vehicle production in September.
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 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.
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.