Electric-vehicle battery producer Solid Power on Tuesday announced it’s going public by merging with blank-check firm Decarbonization Plus Acquisition Corporation III in a deal valued at $1.2 billion.
The company is expected to have approximately $600 million in cash, including $165 million from investors such as Koch Strategic Platforms, Riverstone Energy Limited, Neuberger Berman funds, and Van Eck Associates Corporation. The capital will be used to fund operations and growth.
Ford Motors and BMW recently participated in the $135 million Series B funding of Solid Power in May. The two companies also expanded partnerships with Solid Power to secure all solid-state batteries for future electric vehicles.
Solid Power produces rechargeable batteries for electric vehicles and mobile power markets. The company claims its production mirrors lithium-ion manufacturing processes while eliminating certain expensive and timely steps.
Upon closing of the transaction, which is expected to be completed in the fourth quarter of 2021, the combined company will trade under the Nasdaq ticker “SLDP.”
Solid Power is expected to have a nine-person board composed of a majority of independent directors and will continue to be led by Solid Power’s existing management team.
SPACs, shell companies seeking to merge with private companies with the intention of taking them public, have exploded in popularity in the last year.
In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But in the sixth month of 2021 alone, data already show 340 SPACs that have raised $106 billion, comprising 61% of initial public offerings.
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 Nikola have fallen as much as 90% since its peak at $93.99 last June. But Ubben said the company is on target with its timeline of launching its electric semi-truck sometime between 2022 and 2023.
Nikola did seem to make some progress on Thursday, as it announced a collaboration with TravelCenters of America to install hydrogen fueling stations at two locations in California. The hydrogen fueling stations are expected by be commercially operational by the first quarter of 2023, and will serve as a potential roadmap for developing nationwide hydrogen fueling infrastructure with TravelCenters in the future.
Comments from Ubben, who has sold Nikola shares in the past, come about one week before a sizable lock-up period expires for company insiders. In November, Nikola’s board members, executive officers, and their affiliates voluntarily agreed to extend their original lock-up provisions through April 30, 2021.
The lock-up expiration will allow 136.7 million Nikola shares to be sold, roughly doubling its current share float of 144 million shares.
Last summer, Trevor Milton was a newly minted billionaire with a startup that was more valuable than Ford. His company, Nikola, hoped to do for hydrogen-powered semi trucks what Tesla had done for electric sedans and SUVs.
But in September, Hindenburg Research, a financial-research firm that bets against companies it thinks have misbehaved, published a scathing takedown of Milton and Nikola, saying they had made a series of exaggerations and misrepresentations about the company’s products. Milton denied the allegations – although Nikola would later admit at least nine of them were true – but it set off a chain reaction that led to him stepping down from the company.
Where Milton had recently drawn comparisons to Tesla CEO Elon Musk, he now looked more like WeWork founder Adam Neumann, another ambitious, charismatic entrepreneur who left his company amid criticism over his behavior.
In August, Insider began talking to people who have worked for Milton or interacted with him, including friends, investors, and former employees.
Some said Milton has a long history of bending the truth that stretches back to the first startups he founded in his 20s. Milton, his critics say, has lied to boost his reputation, misled partners and coworkers about his companies’ products, and claimed he and his employees built parts they bought from suppliers.
“As you work closely with him, you begin to see that he struggles to tell the truth about anything,” a former coworker told Insider.
Shares of Nikola dropped as much as 12% on Friday after JPMorgan downgraded the fuel-cell truck developer to neutral from overweight, according to a research note.
JPMorgan’s drive to downgrade Nikola was “a tactical move” based more on the timing of future catalysts than the underlying fundamentals, the note said.
According to the bank, the “good news is now priced in the stock, so we step aside for now,” the note said. The bank maintained its price target of $30, representing potential upside of 87% from Thursday’s close.
Much of that good news includes evidence that the company is more focused on its goals and is passed the drama caused by founder and former CEO and chairman Trevor Milton.
Milton voluntarily stepped down from the company as chairman in late September, after a short-seller report from Hindenburg Research alleged that Milton and Nikola deceived investors. Nikola dismissed many of the claims raised in the report.
Nikola “has left much of the drama of 2020 behind,” JPMorgan said.
But JPMorgan sees the Nikola’s story exciting investors once again in mid or late 2021 if customer orders are announced, “and as the first FCEL prototype comes to life,” the note said.
The decline in Nikola on Friday came amid a broader market sell-off in high-growth tech stocks that have been shunned by investors amid rising interest rates. Shares of Tesla were down as much as 13% on Friday.
Electric-truck startup Nikola determined its ousted founder Trevor Milton made several inaccurate claims about the company’s technology following an internal probe.
In an annual regulatory filing released Thursday, the electric-vehicle firm detailed nine statements Milton and the company made from 2016 through the firm’s public listing last year that were “inaccurate in whole or in part, when made.”
In September, short seller Hindenburg Research published a report accusing Nikola of “intricate” and “massive fraud,” alleging, among other things, that Milton misled investors by misrepresenting the capabilities of one of Nikola’s early semi prototypes, the Nikola One. The report sent Nikola’s share price plummeting, sparked multiple federal probes, and led to Milton’s departure from the company.
Following Hindenburg’s accusations, Nikola hired the law firm Kirkland & Ellis LLP to conduct an internal review, the findings of which it published Thursday. In all, the probe concluded that seven statements made by Milton and two made by Nikola were either fully or partially inaccurate.
The comments included a December 2016 statement Milton made claiming that the Nikola One was a fully functioning vehicle. Other misleading statements included an August 2016 claim that “the company had engineered a zero-emission truck” and a July 2016 claim by Nikola that it owned rights to natural gas wells.
The company said it is paying $8.1 million for Milton’s legal fees, including $1.5 million in 2020, as part of his indemnification agreement.
Nikola maintains that many of Hindenburg’s allegations, including the accusation that the EV maker in its entirety is a fraud, weren’t accurate. It said the internal review is ongoing, and that it will continue to investigate whether any of the misleading statements were intentional or caused harm to shareholders.
In the aftermath of the debacle, Nikola scaled back its ambitions to instead focus on building battery-electric and hydrogen-fuel-cell semis for long-haul trucking. A major deal with General Motors fell through, and Nikola abandoned its plans to produce a consumer pickup truck called the Badger. In Thursday’s filing, Nikola said it closed its “powersports” division, which was working on an electric ATV and jet ski, in late 2020
However, following the company’s fourth-quarter earnings call on Thursday, some Wall Street analysts are optimistic that the truck company can move past last year’s scandal and reinvent itself as a major player in the EV space.
“Overall we would characterize last night as a positive step in the right direction after navigating a Category 5 storm post the short report/Trevor departure,” Daniel Ives, an analyst at Wedbush Securities, said in a Friday note. “Nikola has lofty ambitions and a solid product roadmap, now it’s about building back street credibility one step at a time brick by brick.”
Nikola posted a net loss of $384.3 million in 2020 and said it expects to continue losing money each quarter until it begins delivering its trucks in significant quantities, which won’t be until 2022 at the earliest for its battery-electric vehicle and late 2023 for its fuel-cell truck. The company said it expects to deliver 50-100 electric trucks this year, down from a previous estimate of 600.
CFRA downgraded shares of Nikola to a “sell” on Thursday and lowered the price target to $12 per share after the electric-vehicle maker reported earnings.
Senior analyst Garrett Nelson cited “supplier issues” and potential “legal risks” as the main reasons for the downgrade.
Nikola was able to beat consensus earnings estimates in Q4 posting quarterly EPS of -$0.17 versus an expected -$0.24, but the pre-revenue company revealed its 2021 deliveries for the Tre semi-truck would total only 100 units due to supplier issues, down from 600.
As for legal risks to the company, Nikola disclosed in its 10-K that an internal review conducted by Kirkland & Ellis found at least nine statements made by the company and former CEO Trevor Milton were “inaccurate in whole or in part.”
This confirmed several allegations made by short seller Hindenburg Research back in September of last year. However, the 10-K also said that other statements made by Hindenburg were incorrect.
Nikola’s founder Trevor Milton stepped down on September 21, 2020, after fraud allegations were made public. Recent reports out of CNBC indicate Nikola has been forced to pay $8.1 million for its founder’s legal fees even after his departure.
Analyst Dan Ives of Wedbush wasn’t as concerned about potential legal risks as his peers, however. In a note to clients on Friday Ives said, “we would characterize last night as a positive step in the right direction after navigating a Category 5 storm post the short report/Trevor departure.”
Ives called Nikola a “prove me” story and cited investments into hydrogen-powered battery technology, a friendly clean energy environment from the Biden administration, and partnership momentum as his reasoning.
Ives holds a “neutral” rating and a $25 price target on Nikola.
On the other hand, CFRA’s Garret Nelson said, “even absent its legal issues, we think NKLA stacks up less favorably versus other EV names.”
Nikola holds three “buy” ratings, eight “neutral” ratings, and now one “sell” rating from analysts.
Shares of the EV maker were down 4.99% as of 11:36 a.m ET on Friday.