The broader implications of Lordstown’s failures
The boom in special purpose acquisition companies has helped some new-generation vehicle makers take “fake it until you make it” to new heights
Adding to doubts raised against Nikola and Canoo, yet another electric vehicle company that went public via merger with a special purpose acquisition company is in hot water.
The most recent entrant to the list? Lordstown Motors, an Ohio-based EV startup that’s building a pickup truck. Roughly a year ago, the company agreed to go public via merger with DiamondPeak Holdings at an estimated valuation of $1.6 billion. The two companies announced the combination with predictably effusive words: The company was producing a “revolutionary vehicle for an underserved market” and had a “clear path to be first to market,” the presentation announcing the deal declared.
That path turned out to be far murkier than implied. This morning, CEO Steve Burns and CFO Julio Rodriguez resigned after an investigation commissioned by Lordstown’s board of directors found that some information the company released about its pre-orders had been inaccurate in ways that overstated actual customer demand.
Investor doubts in the company had been invigorated in March by a report from short-seller Hindenburg Research which claimed that the EV maker had misled investors about demand and production capabilities. In its report today, Lordstown largely rejected Hindenburg’s findings. But it admitted earlier this month that it was in dire straits: It told investors that it may not have enough cash on hand to start commercial production and warned them that it may not survive over the next 12 months.
There are easy conclusions to make here–including, that the EV business is a cash-intensive one, that investors are turning away from newer companies the sector, and SPACs are getting a harder look from the SEC. But there is a particularly problematic implication of Lordstown’s story. Founded just two years ago, the company acquired a plant from General Motors in, yes, Lordstown, Ohio. It became part of a larger sign of hope for economic revival in the area, with then-CEO Burns saying the company hoped to eventually hire thousands at the location. President Donald Trump in 2019 dubbed it “GREAT NEWS FOR OHIO,” as GM had originally planned to shut down the plant (GM also at the same time pledged to invest more in the state). Now however, Lordstown’s future–the town’s as well as the company’s–is unclear.
Perhaps Lordstown will find more funding. Perhaps the company will find a buyer for its factory. The company didn’t make any such predictions (and doing so would land it in even muddier waters), but it did appoint its current lead independent director, Angela Strand, as its executive chair. At the very least, the uncertainty is a sign that for towns in hard-hit Rust Belt counties, changing over into a new industry is not as easily done as said.
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