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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This vitamin C serum was developed by MIT scientists and makes my skin glow – it’s back in stock after selling out multiple times

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Maelove Glow Maker

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Generally speaking, most skincare is expensive. There are good options at low prices, but there are also one too many $300 night creams and pots of rare ingredients infused with gold flecks to call the genre accessible all-around. 

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Kim and co-founders Brad Yim and Rishi Khaitan, MIT graduates, leveraged artificial-intelligence techniques to scan millions of self-reported product reviews to determine which ingredients correlated with success, and which to avoid. The resultant three-years-in-the-making vitamin C serum has been generating enthusiastically positive reviews online, including from me.

The formula

The Glow Maker was designed to smooth, hydrate, and help with hyperpigmentation. It’s packed with ingredients like vitamins C and E for brightening, ferulic acid for antioxidation protection, hyaluronic acid for hydration, and a proprietary mix of botanicals (grape seed extract, aloe, aurantium dulcis, and magnolia) for nourishment and easier makeup application. The addition of extracts also makes the serum better for sensitive skin than most other vitamin C serums.

Consumers have also been quick to note The Glow Maker ($28) has striking similarities to SkinCeuticals’ multi-award-winning C E Ferulic Serum ($166), despite it being more than $130 cheaper.

For reference, we compared the ingredients in the Glow Maker and the SkinCeuticals CE Ferulic Serum:

  • The ingredient list of C E Ferulic according to SkinCeuticals ($166): Aqua/Water/Eau, Ethoxydiglycol, Ascorbic Acid, Glycerin, Propylene Glycol, Laureth-23, Phenoxyethanol, Tocopherol, Triethanolamine, Ferulic Acid, Panthenol, Sodium Hyaluronate.
  • The ingredient list of Glow Maker according to Maelove ($28): Water (Aqua), Ascorbic Acid, Ethoxydiglycol, Aloe Barbadensis Leaf Juice, Glycerin, Lecithin, Sodium Hyaluronate, Ferulic Acid, Citrus Aurantium Dulcis (Orange) Callus Culture Extract, Magnolia Officinalis Bark Extract, Vitis Vinifera (Grape) Seed Extract, Xanthan Gum, Disodium EDTA, Sodium Metabisulfite, Triethanolamine, Phenoxyethanol, Ethylhexyglycerin, Maltodextrin, Tocopherol.

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What it’s like to use

In person, Maelove’s Glow Maker is noteworthy for more than just its origin story. It does what it’s supposed to do (brightens the complexion, lightens dark spots) but its real standout features are that it absorbs completely and almost instantaneously into the skin, and that it provides a glow that’s noticeable but not so over-the-top that people with oily skin should steer clear. There’s no tangible residue, and the skin doesn’t feel sticky or tacky post-use.

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The bottom line

The Maelove team is an unusual one- comprised of cancer and brain researchers, chemical engineers, lawyers, doctors, and an obsessive skincare enthusiast – but that outsider perspective is its greatest advantage. The startup’s founding goals were affordability and accessibility, and thanks to obsessive research and a streamlined, no-fuss approach to an often stuffy industry, that goal is met with a product line unanimously priced under $30. The Glow Maker is a definite favorite, but other Maelove standouts include the One Cream ($28, currently sold out), Eye Enhancer ($28), and the perfectly gentle but effective Glycolic Acid cream, the Night Renewer ($28)

If you’ve been paying $166 for SkinCeuticals’ C E Ferulic Serum, you owe it to yourself to check out the Glow Maker. If you don’t love it, Maelove offers a 100-day return window for a full refund.

Product Card (button)

Read the original article on Business Insider