Electric pickup truck startup Lordstown Motors Corp. (NASDAQ: RIDE) might not survive the year unless it raises more money, the company said Tuesday, declaring it is in danger of remaining a “going concern.”
After a recent runup in its stock price on the fringe of a meme stock rally, Lordstown shares plummeted 16.2% in late trading Tuesday following the disclosure of amendments to its annual report filed with the Securities and Exchange Commission (SEC).
Since going public in a business combination with special purpose acquisition company (SPAC) Diamond Peak Holdings Corp. last October, Lordstown (LMC) has been beset with troubles.
Short seller Hindenburg Research accused LMC of faking many of the 100,000 preorders it claimed to have for its battery-powered pickup called Endurance. Lordstown conceded that it paid to generate some of the order flow for the Endurance to excite the market, but the company denied any wrongdoing.
The SEC is investigating the company. Other setbacks included an early exit from the San Felipe 250 racing event in Mexico, where Lordstown hoped to show the toughness of the Endurance, which used too much battery power to continue.
More recently, competition from established automakers Ford Motor Co. (NYSE: F) and General Motors (NYSE: GM) chilled Lordstown’s prospects in the commercial pickup market.
The Ford F150 Lightning electric pickup will sell for more than $12,000 less than the Endurance when it goes on sale in 2022. And it comes from a company that has sold more pickup trucks than any competitor for 44 consecutive years.
“As soon as people saw the F-150 Lightning, any chance of getting any additional investment pretty much dried up. I think it’s highly unlikely that Lordstown is going to find a savior that’s going to keep them going,” Guidehouse Insights principal analyst Sam Abuelsamid told FreightWaves.
GM, which effectively gave its former Lordstown assembly complex in northeast Ohio to LMC, is a minor investor despite planning an electric version of its Chevrolet Silverado pickup in the next couple of years.
“Once potential customers had a chance to look at what else was coming, there’s no immediate rush to buy this truck from an unknown manufacturer that’s got no history,” Abuelsamid said.
Coincidentally, GM is building a $2.3 billion battery plant in a joint venture with LG Chem in the shadow of its former 6.2 million-square-foot assembly plant that opened in 1966.
“The only reason GM got into this in the first place was for political reasons during the Trump administration,” Abuelsamid said. “They didn’t want the blowback from closing the factory or to deal with the criticism. So, they did it for goodwill, essentially giving the factory to a startup to let them try to make something out of it.”
Going concern warning
LMC disclosed in the delinquent regulatory filing Tuesday that it lacks sufficient cash to start commercial production and doubts it can stay in business through the end of the year.
Lordstown CEO Steve Burns said during the company’s first-quarter earnings call May 24 that the company needs more money to produce the 2,200 Endurance models it plans to build this year beginning in September. That is less than half the company’s original production estimate.
Higher-than-expected costs were accelerating its cash burn and it would finish the year with between $50 million and $75 million on hand, Burns said on the earnings call.
As recently as the closing of its $780 million business combination with Diamond Peak last October, Burns said Lordstown had more money than it needed to begin production.
“I think they significantly underestimated how much they were going to need in order to finish development and retool the factory,” Abuelsamid said. “Given the current supply chain problems the entire industry is facing, some of their parts probably went up quite a bit compared to what they were planning on. They’ve just been burning cash faster than they hoped.”
The Diamond Peak-Lordstown SPAC deal went from announcement on Aug. 3 to an Oct. 22, 2020. At about 11 weeks, that’s fast even by SPAC standards.
The SEC review of SPAC deals, which bypass many of the rigors of traditional initial public offerings, typically take four to six months. And that was before the agency began to step up scrutiny of so-called blank check mergers earlier this year.
As a startup with none of the infrastructure of an established manufacturer and a massive retooling of a 55-year-old plant that last made passenger cars, Burns found out how expensive it is to start a new automotive venture.
In quarterly and annual SEC filings made public Tuesday, Lordstown laid out its dire financial condition.
“The company’s ability to continue as a going concern is dependent on its ability to complete the development of its electric vehicles, obtain regulatory approval, begin commercial scale production and launch the sale of such vehicles,” the filing said.
“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.”
Lordstown shares had been trading at $15.80 when the filings were released. Shares plunged as low as $10.30 before closing with a 16.3% decline at $11.22. The price slipped below $11 a share in after hours trading.
Workhorse woe ahead?
Burns is the former CEO of Workhorse Group (NASDAQ: WKHS), which is struggling to ramp up production of battery-powered composite electric delivery vans. Workhorse licensed its W-15 pickup truck technology to LMC in exchange for a 10% stake in the company and royalty payments for each W-15 order converted to an Endurance sale by Lordstown.
Workhorse took a noncash hit in Q1 earnings because of LMC’s falling stock value after reflecting gains when LMC shares were trading higher.
Workhorse had planned to contract LMC to build battery-electric Next Generation Delivery Vehicles (NGDVs) for the U.S. Postal Service if it won a $6.2 billion contract. The Postal Service instead awarded the contract to Oshkosh Truck Corp. (NYSE: OSK), a move that led to a halving of Workhorse’s stock value that had been driven up by retail traders.
“I would assume Workhorse is going to have to take a pretty significant charge, especially if [LMC] goes under completely and the equity goes to zero,” Abuelsamid said. “They were counting on the stock price but also getting some royalties back from Lordstown.”
News analysis: Nikola tormentor Hindenburg Research opens fire on Lordstown Motors
SPAC shareholders approve Lordstown Motors reverse merger
Lordstown Motors SPAC vote set amid unique business risks