Short seller Hindenburg Research targets EV start-up Lordstown Motors; Stocks fall 16%

The startup is named after the city in Ohio where the company bought an inactive former General Motors. Co.

assembly plant in 2019. As a result of this agreement, GM acquired a small stake in Lordstown Motors. A GM spokesperson declined to comment immediately.

The Wall Street Journal was unable to independently verify the accusations in Hindenburg’s report.

Shares of the Ohio-based company fell 16% after the report was released on Friday morning. Hindenburg – which last year targeted another electric truck start-up, Nikola Corp.

– revealed in its last report that it has a short position in Lordstown Motors, which means it should profit from the decline in the company’s stock price.

Hindenburg’s report described Lordstown Motors’ backlog as a “mirage” and, among other accusations, said he paid a group of outside consultants to generate pre-orders for his truck before his deal became public in 2020. The report cited documents and conversations which the company said it had had with former employees and business partners.

Mr Burns confirmed that the company paid consultants to generate pre-orders that were seen as non-binding as a way to gauge market demand, but denied distorting its pre-order backlog.

“We are not declaring that these are orders and we have never declared that,” he said.

Lordstown Motors is one of several clean transport startups that have gone public over the past year amid growing investor interest in electric vehicles. The company was listed last year in a deal with a special purpose acquisition company, or SPAC, DiamondPeak Holdings Corp., which valued the company at $ 1.6 billion.

The company, which had a market value of $ 2.9 billion on Thursday, has yet to sell a vehicle. It targets the commercial truck market, vehicles typically used by fleet operators in business or government.

Lordstown Motors and Mr. Burns have regularly mentioned his pre-order backlog to highlight the strength of demand for his next commercial pickup, Endurance, and to promote his business to investors. “Most of them are signed by the CEOs of these big companies,” Burns said of pre-orders in an interview with CNBC in November. “These are very serious orders.”

In a regulatory disclosure in December, Lordstown Motors said it had no current customers or back orders, and there can be no assurance that non-binding pre-orders will convert into sales. In a January press release, Lordstown Motors said more than 100,000 reservations for its Endurance truck were non-binding.

Hindenburg said the orders were not only non-binding, but also “largely fictitious” and did not represent “real demand”. The New York-based research firm, led by Nathan Anderson, said it has spoken to several businesses and municipalities that the company counts as having preorders.

Some pre-orders of 1,000 or more trucks were from companies that did not operate a commercial fleet, Hindenburg said. Others with pre-orders told the company they had neither the means nor the intention to purchase the number of trucks tied to the reservation, according to the report.

Responding to those claims, Mr Burns said the company believes there is demand for its trucks and that preorders are a way to gauge interest as it prepares the plant to build for certain volumes. He also said that some of these companies are not fleet operators but intermediaries.

“If a guy signed a piece of paper that said, ‘I think I can move thousands of them,’ we believe him. But it’s not in the blood. It is a non-binding letter of intent, ”he said.

The report also said Lordstown Motors was behind schedule to start production at the Ohio plant in September and was facing undisclosed production delays. He said former employees told Hindenburg the start-up still made batteries by hand, despite plans for in-house mass production.

Mr Burns said Lordstown Motors is still on track to start building market-ready trucks in September and much of the equipment needed to make the battery packs is installed.

Hindenburg also said a prototype of Lordstown Motors’ new truck caught fire 10 minutes after its first test drive began in January. The company cited a police report it obtained through public record requests. Mr Burns confirmed the fire, but said it was determined to be caused by human error during assembly.

Lordstown Motors initially stated its intention to start production by the end of 2020. The company then pushed back the schedule to January 2021, citing a hiatus from the Covid-19 pandemic, and recently postponed the start of production. to September.

In January, Lordstown Motors said it had started building 57 prototype trucks for testing. He also said he was working on an electric van, which is expected to go into production in the second half of 2022.

Lordstown Motors is due to release its fourth quarter financial results and hold its first investor conference call on Wednesday.

Mr. Anderson of Hindenburg and a Wall Street Journal reporter are among more than 20 defendants in a lawsuit brought by private equity firm Catalyst Capital Group and Callidus Capital Corp., alleging a short sale conspiracy linked to an article from 2017 on Catalyst. A representative of the Journal said the news organization was confident in the fairness and accuracy of its reporting. Mr Anderson said, “We keep our research on topics 100%.”

Hindenburg released a report on Nikola last fall, accusing the Phoenix-based electric and hydrogen truck maker of “complex fraud” and of making misleading statements. As a result of the report, Nikola’s stock collapsed, the company received subpoenas from the Securities and Exchange Commission and the Department of Justice, and its founder Trevor Milton left the company.

Nikola called the report’s claims false and misleading. In a recent regulatory filing, he said an internal review of Hindenburg’s allegations found nine statements from the company or Mr. Milton to be wholly or partially inaccurate, but challenged the company’s characterization by the fraud report. .

Lordstown Motors acquired the plant in November 2019 from GM for $ 20 million, according to a regulatory filing. GM subsequently canceled the purchase obligation, other loans and interest in exchange for 7.5 million shares of Lordstown Motors, a 4.5% stake, according to the filing.

Write to Ben Foldy at [email protected] and Mike Colias at [email protected]