The Lordstown Motors debacle was foretold in title deposits

The mayor of Lordstown, Ohio, is waiting to see what happens next with the start-up of high-profile electric trucks that promises to revitalize the country. So are the company’s investors.

Lordstown Motors has promised Mahoning Valley 400 jobs and the possibility of moving this part of northeast Ohio into what some have called the “Voltage Valley.”

Instead, the main leaders have renounced after a warning that the company could run out of money and Lordstown now threatens to become one of the biggest disappointments among electric vehicle start-ups that have rushed to go public via special-purpose purchasing companies in the last year .

The valley of Mahoning is disappointing. The 3,200-person village is about 17 miles from Youngstown, where residents still talk about it “Black Monday”, on September 1977 when Youngstown Sheet & Tube announced the closure of the larger of its two steel mills and laid off 5,000 people without work.

President Donald Trump held a rally in 2017 in Youngstown telling Ohioans not to leave, because “we’re going to get those jobs back, and we’re going to fill those factories.”

The factory where Lordstown Motors is said to be making its top pickup, the Endurance, formerly made the Chevrolet Cruze from General Motors, employing 12,000 at its height. GM closed it in 2019 and, amidst Trump’s orange, agreed to sell it initially despite uncertainty over its financing plans.

“We are surviving here in the Mahoning Valley,” said Arno Hill, mayor of Lordstown. “We are the country of broken promises.”

Endurance, Lordstown’s electric pick-up, will be targeted at merchant fleet operators © Megan Jelinger / AFP via Getty

Fat sales forecast

Lordstown Motors is not the first electric vehicle start-up to have disappointed investors in a few months of being made public by a Spac. Nikola, which plans to manufacture industrial trucks, admitted that its founder did statements in whole or in part inaccurate, and the company is now under investigation by the U.S. Department of Justice. Shares in other start-ups declined when investor euphoria gave way to realism over the difficulties of hitting ambitious production and sales targets.

Companies that go public via a Spac have more freedom to make bold sales forecasts than companies that pursue a traditional initial public offering, a difference that regulators have marked as restless.

Lordstown benefited. PowerPoint presentations used to attract investors in August and September gave a color picture of the company’s prospects. He said he expects $ 1.7 billion in revenue by 2022 and more than three times that by 2024, largely from Endurance, which is priced at $ 52,500 and is intended for fleet operators. commercial rather than to luxury buyers.

Significantly, the start-up has promoted its “strong” balance sheet. It would have $ 675 million in cash after it was made public, including money raised by institutional and cash investors already owned by DiamondPeak Acquisition, the Spac set up by former Goldman Sachs real estate banker David Hamamoto. He said he did not expect “any additional capital requirements” until it began selling vehicles.

Behind the scenes, he was at odds with regulators over where to put the asterisks at that red prospect.

In September, the Securities and Exchange Commission ordered to state more importantly that an independent auditor, assessing its losses to date, had found “substantial doubt about the company’s ability to continue as a company. in anda “.

This report, found on page 288 of the Lordstown proxy preliminary statement, was referred to on page 51 of the final version before a vote by DiamondPeak shareholders.

“While Lordstown believes in the revenues of the business combination [with DiamondPeak] providing sufficient funds to alleviate this doubt, additional funding may be needed in the future for a variety of reasons, ”the company said in the final statement.

September 17, 2020: Presentation of Lordstown to investors

September 21, 2020: Lordstown exchanges with Securities and Exchange Commission

‘Evaluation of financing alternatives’

The fine print of the proxy showed a more reliable guidance of some of the figures in the Lordstown PowerPoint.

The prospect of disappointment was raised earlier in March when shortstop Hindenburg Research published a report saying the company’s 100,000 pre-orders were “largely fictitious and used as props to raise capital”. The SEC has opened an investigation.

In May, the company said it planned to raise more capital and by last week, Lordstown had warned that the company it could fail in a year.

The $ 587 million in cash and cash equivalents it had at the end of the first quarter “is not enough to fund commercial-scale production,” according to a June 8 regulatory filing. “Management is currently evaluating several funding alternatives.”

Stock price line ($) showing Ride with Lordstown Motors

The company did not respond to messages seeking comment for this article, but made a series of public comments this week.

On Monday, when chief executive Steve Burns and his chief financial officer resigned, a special committee set up by Lordstown council revealed that the company had inaccurately described pre-orders for the electric pick-up. A large number came from “influencers” with no intention of buying trucks or from entities without the funds to complete the purchase, he said.

On Tuesday, executives told reporters that the company has enough money to last until May 2022, and plans to begin limited Endurance production in September. Lordstown had “binding” purchase orders for the first two years of production, the company’s president Rich Schmidt said.

On Thursday, the company clarified in an SEC filing that while these pre-orders “provide us with a significant indicator of demand,” they were not firm.

“A rising tide is not raising all boats”

Mayor Arno Hill says the country has excluded Lordstown Motors from its budget plans. “You don’t apply your finances to something you don’t even have,” he said.

Their hopes for an electric event for the Mahoning Valley are more firmly focused on established players such as GM and LG Chem, who announced a joint venture in May 2020 to build a $ 2.3 billion plant in Lordstown to make battery cells. The plant has picked up “at the speed of war,” Hill said, and has already begun to take over. It is expected to employ 1,100.

Arno Hill, Lord of Lordstown: ‘We are the land of broken promises’ © AFP via Getty Images

Jobs lost when GM closed the Cruze plant cannot be replaced immediately, Hill said, “but we’re still working on it.”

Lordstown jobs could also give a break to investors who, looking for the next Tesla, have raised money on start-up EVs in the past year.

“It’s a fourth Industrial Revolution playing, but a rising tide isn’t raising all the boats,” said Dan Ives, Wedbush analyst. With Lordstown Motors, “there are more questions than answers at this point.”

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