LORDSTOWN — Just weeks away from an open house for investors and analysts, Lordstown Motors Corp. told investors the company might not make it through the year without new financing.
It’s also been subpoenaed by the U.S. Securities and Exchange Commission in relation to its public merger last year as well as its pre-orders for its all-electric pickup truck, the Lordstown Endurance, which a short-selling firm claims were fabricated.
Just before the stock market closed Tuesday, the electric vehicle startup filed an amendment to its 2020 annual report to the SEC and disclosed its “substantial doubt” about continuing “as a going concern,” a term which alerts investors that the company is struggling financially and that shareholders are at risk.
The company had about $587 million in cash or equivalents and a $260 million deficit by the end of March. The company lost $125 million in the first quarter.
“Our ability to continue as a going concern is dependent on our ability to complete the development of our electric vehicles, obtain regulatory approval, begin commercial scale production and launch the sale of such vehicles,” reads the filing. “We believe that our current level of cash and cash equivalents are not sufficient to fund commercial scale production and the launch of sale of such vehicles.”
Following the first report of the new filing, Lordstown Motors shares (NASDAQ: RIDE) tanked nearly 28 percent in the last half-hour of trading, to close at $11.22. Just a half-hour before close, it was at $15.50.
No company comment; diminished goals
A Lordstown Motors spokesperson declined to comment directly on the Tuesday filing, and instead referred to comments CEO Steve Burns made during a May investors call.
It was then Burns announced the company’s future cashflow concerns, yet he also underlined the company’s commitment to meeting its late September goal to start limited production of the Endurance. Even that commitment was only to build 1,000 units; half of the company's original target.
“The worst, worst case: We’re still making pickup trucks this year,” Burns said.
The company’s current budget allows for a limited run of the Endurance later this year, according to the Tuesday filing. It had previously planned for mass production to begin in September.
“Additional funding is needed for production in 2022 and beyond and to continue our ramp up to full commercial production. The amounts required may be significant,” reads the filing.
Executives are now delaying some spending to keep limited operations going — choosing to focus on retooling efforts at the 55-year-old former General Motors plant — and looking for alternative funding sources like issuing new equity or debt — or a hybrid of the two, called “mezzanine” debt — obtaining new lines of credit or making arrangements with strategic partners.
Lordstown Motors late last year announced its partnership with Camping World, which pledged a nationwide service support network for the Endurance.
“As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all,” reads the Tuesday filing.
“If we are unable to raise additional capital in the near term, our operations and production plans will be scaled back or curtailed and, if any funds raised are insufficient to provide a bridge to full commercial production and generation of sufficient funds from operations, our successful operation and growth would be impeded.”
That retooling work at the Lordstown plant, though “nearly complete,” according to the company, has faced delays and cost overruns.
“These risks could be exacerbated because we are attempting to modify a complex, originally designed to build traditional internal combustion engine vehicles, to support the emerging technologies behind electric vehicles,” reads the filing.
Lordstown Motors is also seeking a federal loan typically offered to retool manufacturing facilities for new vehicle technology — it’s the same loan which Burns says helped establish electric vehicle-maker Tesla Motors — but there are no guarantees on whether it will land the funding, how much it will be or when they can expect it.
Lordstown Motors executives have yet to directly address a damning report published in March by a short-seller firm, alleging the company’s purported 100,000 pre-orders for the Endurance are largely fictitious and that the company is far behind on its September production goal.
One of the risks outlined in the amended filing is that the company does “not have any current customers or any pending orders” for the Endurance, which is being marketed toward vehicle fleet buyers. Burns during the May investors call claimed the company had converted about 30,000 non-binding letters of intent to purchasing agreements, which he suggested were more substantive.
The company is also facing at least six separate lawsuits filed on behalf of investors alleging they were misled or that executives dumped shares before they fell.
The company on Tuesday also disclosed the SEC has issued two subpoenas for records pertaining to its October 2020 merger with DiamondPeak Holdings Corp. — which made Lordstown Motors a publicly traded company — and its vehicle pre-orders.
“The company is responding to the SEC’s requests and is cooperating with its inquiry,” reads the filing.
What’s the Valley’s takeaway
U.S. Rep. Tim Ryan of Howland, D-13th, a vocal supporter of the Valley’s efforts to rebrand itself as an electrification hub, was quiet Tuesday, declining comment to Mahoning Matters.
Lordstown Mayor Arno Hill said the village doesn’t have a “nickel in the game,” since it didn’t offer the company any tax abatements. Neither did Trumbull County.
“I’m gonna have to go with ‘wait and see,’” Hill told Mahoning Matters Tuesday. “I’m prepared for the worst but the worst is they’re gone, just like GM was gone.”
And in its place, others arose, like Ultium Cells and TJX HomeGoods, which opened quietly at the end of March, according to the Business Journal.
The Ohio Tax Credit Authority in December approved Lordstown Motors for a 1.6-percent, 15-year state tax credit worth $20 million, on expectations it will create 1,570 new full-time jobs.
Lordstown Motors currently employs about 320 full-time workers who are readying the plant for mass production, according to its SEC filings. The company expects to “significantly grow” its number of employees as production nears.
Timothy O’Hara, formerly part of the United Auto Workers leadership that represented the thousands of GM Lordstown workers laid off when the automaker closed the plant in March 2019, said he thinks most of the Local 1112 members saw this coming.
“But it’s another economic blow to the Mahoning Valley if [Lordstown Motors] ultimately fails and that’s a shame, especially since GM should have reinvested the money they spent on the [Ultium Cells] battery plant and kept GM Lordstown open and employing 5,000 hard-working union members at the complex and parts suppliers,” he told Mahoning Matters Tuesday.
O’Hara is referring to GM’s $2.3-billion joint venture with South Korea’s LG Chem to make batteries that will power some of GM’s electric vehicle lineup. The plant, now under construction near the Lordstown Motors complex, is slated to spin up in mid-2022 and create more than 1,000 jobs.
Even with the Endurance’s grim forecast, Ultium Cells still gives Rick Stockburger reason to be optimistic. Stockburger, the president and CEO of BRITE Energy Innovators in downtown Warren, said Ultium’s proximity to the 6.2-million-square-foot former GM plant means “it would make a lot of sense” for the region to keep pursuing vehicle electrification prospects.
“I think Lordstown Motors was susceptible to the stock market and what that looks like and how things change. They needed to capitalize more,” he told Mahoning Matters Tuesday.
“One way or another, an electric vehicle, car or truck, is gonna be produced out of that plant and I’m very excited BRITE and the region are going to be there to support it,” Stockburger said.
Guy Coviello, president and CEO of the Youngstown/Warren Regional Chamber, expressed optimism for the startup.
"Every time there is new technology there will be multiple fits and starts. In addition, this is a very competitive industry," he told Mahoning Matters. "We certainly hope Lordstown Motors generates the capital it needs to produce vehicles long term."
Nearly one-third of all Lordstown Motors’ available shares have been “shorted,” according to Barron’s. That means investors borrowed then sold those shares, expecting to buy them back later after the stock has lost value, and make money.
By the start of trading Tuesday, Lordstown shares had fallen about 33 percent from the start of the year, Barron’s reported.