LORDSTOWN — Lordstown Motors Corp. continues its bumpy downhill RIDE on the stock market.
The upstart electric vehicle-maker’s CEO and founder Steve Burns and its CFO Julio Rodriguez have both been ousted amid a lingering storm of fraud reports, doubts about the company’s commercialization, missed regulatory and property tax deadlines, numerous investor lawsuits and a federal securities investigation.
An internal committee tasked with investigating a damning short-seller’s report that alleged the company’s book of 100,000 preorders for its all-electric Endurance pickup truck was “a mirage” and cast doubt on the company’s ability to meet its September 2021 production deadline found the report was “in significant respects, false and misleading,” but that it did identify accuracy “issues” with statements made about the company’s pre-orders.
“We thank Steve Burns for his passion and commitment to the company,” said board Chairman David Hamamoto in a release Monday. “As we transition to the commercial stage of our business — with planned commencement of limited production in late September — we have to put in place a seasoned management team with deep experience leading and operating publicly listed [original equipment manufacturer] companies.”
Management Burned out
Burns will continue to receive his base salary for 18 months, a total of $750,000, according to his separation agreement. Burns’ initial salary was set in November 2019 at $250,000 a year, according to other filings, meaning that it has doubled since then.
The company will also continue paying Rodriguez six months of salary, a total of $200,000. He’ll also retain stock options that will become fully vested in November.
Burns has also resigned his seat on the company’s board of directors, though he will retain his more than one-quarter ownership of the company. Burns holds more than 46 million shares of Lordstown Motors, or 26 percent of all its outstanding Class A common stock — far and away the single largest stake in the company.
Morgan Stanley analysts said Monday though Burns’ departure will likely help Lordstown Motors gain new financing — which it needs to reach commercial production of the Endurance — sale of his shares could create more selling pressure, according to Investors.com.
The company’s regulatory filings, however, indicate at least half of Burns shares will be locked up until this October, meaning they can’t be sold until then. The other half will remain locked until October 2022.
Angela Strand, Lordstown Motors’ lead independent director, has been appointed executive chairwoman until the company names a permanent CEO.
Strand is considered a “thought leader and expert” in the electric vehicle industry, according to the Monday release.
She’s the managing director of Strand Strategy, “an advisory firm specializing in technology, business strategy and organization development” and has more than a decade of experience working with fleets and fleet management companies to “successfully launch and deploy electric trucks,” according to the release. The Endurance is targeted toward fleet buyers.
In its annual financial report to the U.S. Securities and Exchange Commission, the company's reliance on Burns' leadership was listed as a potential risk to investors.
"Mr. Burns is our founder and a significant influence on and driver of our business plan. If Mr. Burns were to discontinue his service to us due to death, disability or any other reason, we would be significantly disadvantaged," reads the filing.
Strand worked with Burns for at least a year before the launch of Lordstown Motors, as the former vice president of Workhorse Group, a Cincinnati-based electric truck-maker which Burns co-founded and which owns a 10-percent equity stake in Lordstown Motors.
“We remain committed to delivering on our production and commercialization objectives, holding ourselves to the highest standards of operation and performance and creating value for shareholders,” Strand is quoted in the Monday release. “Along with the management team, I will continue to work closely with them and the board to execute on Lordstown’s vision for the future of electrified transportation.”
Becky Roof, a certified public accountant, will serve as the company’s interim CFO — a transitional role she’s held at other companies, according to Lordstown Motors — until a new CFO is selected.
Answering the Hindenburg report
Lordstown Motors on Monday also commented publicly for the first time on a March report by short-selling firm Hindenburg Research, admitting that some statements Burns has made about Endurance pre-orders were inaccurate.
The report claimed Lordstown Motors fabricated pre-orders for the Endurance to give the illusion of demand for the truck. They were actually non-binding letters of intent, and signers were under no obligation to buy or even place deposits. In some cases, signers didn’t even have the means to buy. In other cases, the “pre-orders” were landed via marketing or promotional arrangements.
That’s one major element of the class-action lawsuit now facing Lordstown Motors, Burns and various other officers, in which investors are alleging securities fraud.
At the time of the report, Hindenburg maintained a short position on Lordstown Motors’ stock, meaning it expected the stock to decrease in value and stood to make money if it did. Lordstown Motors in March formed a special committee to investigate Hindenburg’s claims, with help from a legal firm.
“The special committee’s investigation concluded that the Hindenburg Report is, in significant respects, false and misleading,” reads the Monday release from Lordstown Motors. “In particular, its challenges to the viability of Lordstown Motors’ technology and timeline to start of production are not accurate. The investigation did, however, identify issues regarding the accuracy of certain statements regarding the company’s pre-orders.”
Burns in November told CNBC the company had “very serious orders” but later walked back that claim.
“We’ve always been very clear, right? These are just what they’re intended to be. These are non-binding letters of intent. They’re called pre-orders out in the real world,” Burns said during an interview a week after the report. “I don’t think anyone thought that we had actual orders, right? That’s just not the nature of this business.”
Burns has claimed the company has since converted potential buyers for 30,000 units to make tangible pre-orders. That’s enough to fill its production schedule through next year, according to the company.
From the Lordstown Motors release:
“Lordstown Motors made periodic disclosures regarding pre-orders which were, in certain respects, inaccurate.
“Lordstown Motors has stated on several occasions that its pre-orders were from, or “primarily” from commercial fleets. In fact, many pre-orders were obtained from (i) fleet management companies or other end users that indicated interest in purchasing Endurance trucks, similar to commercial fleets, and (ii) so-called “influencers” or other potential strategic partners that committed to attempt to secure pre-orders from other entities, but did not intend to purchase Endurance trucks directly.
“One entity that provided a large number of pre-orders does not appear to have the resources to complete large purchases of trucks. Other entities provided commitments that appear too vague or infirm to be appropriately included in the total number of pre-orders disclosed.”
The Hindenburg report also claimed the truck-maker would miss its September 2021 goal to begin commercial production of the Endurance, citing “drastic” design modifications to the design of the vehicle’s body and a lack of required and extensive safety testing, which would push production back by at least three years.
The company in May announced it would halve its first production run in September to 1,000 units and later announced it wouldn’t reach commercial production without more funding.
Lordstown Motors said Monday that goal “remains achievable,” despite “various factors” that could cause further delays. The first Endurance units would be delivered in the first quarter of 2022, the company said.
It refuted, however, claims about the lack of testing and its slow retooling of the 6.2-million-square-foot former General Motors Lordstown Assembly Complex to include new manufacturing lines for the vehicle’s hub motors and battery packs — all of which is on schedule, according to the company — as well as claims about the design changing from plastic to aluminum.
“While Lordstown Motors made certain changes to the materials to be used for the doors, hoods, and fenders, there has been no change to its plan to manufacture the vehicle frame from steel,” reads the release.
The full release from Lordstown Motors also addresses further claims made by Hindenburg: claims that the Endurance’s hub motor design is unviable; its report on the cause of a January incident in which an Endurance prototype caught fire mere minutes into a test drive; and its report “corporate espionage” suit filed in November by California-based Karma Automotive, which claims Lordstown Motors stole software designs and poached its employees.
On news of the leadership shake-up, shares of Lordstown Motors Corp. (NASDAQ: RIDE) tumbled nearly 19 percent Monday to $9.26, more than 2 points down from the stock's Friday closing price of $11.41.
The company last week announced a cash crunch may keep it from bringing the Endurance to full-scale production next year, part of a “going concern” notice alerting investors may be 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.”
The company is reported to be well-along in the process of obtaining a $200 million loan from the U.S. Department of Energy through its Advanced Vehicle Technology Manufacturing loan program. Unconfirmed reports expect decision-makers to make an announcement soon.
A Department of Energy spokesperson on Monday declined to comment on the specifics of Lordstown Motors’ application. The company announced in January it had entered the third phase of the loan program’s five-phase process: the “due diligence” phase — the timing of which can vary “greatly, depending on the project,” according to the energy department.
Burns has credited the program with helping to establish Tesla Motors. For reference, Tesla Motors said it applied for the loan during President George W. Bush’s administration, and it was awarded in 2010, under President Barack Obama. President Donald Trump’s administration tried and failed to cut the program from the federal budget, citing lack of use.
The automaker is also a week away from its weeklong investor event, Lordstown Week, which will allow investors, analysts and customers a chance to tour the facility and test drive the Endurance — possibly drumming up new interest from institutional investors. A virtual event is set for Friday.
Strand in her Monday statement suggested the event would continue as planned.
A Lordstown Motors spokesperson responded to an email from Mahoning Matters on Monday, but was unable to answer nearly all of the submitted questions.