Short-selling firm accuses Lordstown of exaggerating truck pre-orders

Short-selling firm Hindenburg Research has released a new report alleging that start-up electric truck maker Lordstown Motors has exaggerated customer demand to help with fundraising. CEO Steve Burns claimed Lordstown already has over 100,000 preorders – enough to keep its Ohio plant occupied for more than a year once the company begins production. In reality, these pre-orders are non-binding. And Hindenburg says some of the supposed customers don’t seem to have the financial resources to fulfill their multi-million dollar orders, even if they wanted to.

Hindenburg sells a company’s stock short, then publishes damaging research on the company. If the stock goes down, the business makes a profit. This strategy seems to work with Lordstown. As of this writing, Lordstown stock is down around 15% for the day.

The company made a name for itself by publishing a talk in September about another electric truck maker, Nikola. Hindenburg’s report revealed that a promotional video of the “moving” Nikola One truck actually showed it driving up a hill, with the camera tilted slightly so that it appeared to be driving on level ground. Nikola’s stock has fallen by around 60% since Hindenburg released its initial report.

Nikola and Lordstown are part of a larger phenomenon of companies in the electric vehicle industry – and related industries like lidar for self-driving cars – taking their shares on the stock exchange through Special Purpose Acquisition Companies (SPACs). Investors have given some of these companies extremely aggressive ratings, betting that one of them will become the next Tesla. This sparkling financial environment means that there are great potential rewards for a startup that overhypts its early achievements.

Hindenburg says Lordstown’s order book has a lot of hot air

In an interview with the Wall Street Journal following Hindenburg’s report, Burns acknowledged that the company’s pre-orders were not binding.

“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,” Burns said. “We do not declare that these are orders and we have never declared that.”

Hindenburg asks to defer. The firm notes that during an appearance on Jim Cramer’s CNBC show last November, Burns boasted that Lordstown had 50,000 preorders. Cramer was impressed.

“It looks like some of these orders are coming from solid – Duke Energy, First Energy – these people are not going to walk away,” Cramer said. “They are engaged.”

“Okay. Yeah. All of them,” Burns replied. He later described them as “very serious orders”.

Hindenburg’s research suggested that some of the orders were not that serious. Last December, a Texas eco-consulting company called E Squared placed an order for 14,000 Endurance electric trucks from Lordstown. The E Squared website does not list company employees, and LinkedIn only lists two employees for E Squared, including CEO Tim Grosse. One obvious question is how a small consulting firm will finance the purchase of 14,000 trucks.

In an email to Ars, Grosse denounced the Hindenburg report as a “smear campaign to profit from the short sale of the stock.” But he didn’t respond to follow-up emails or phone calls asking for details.

A February article in Charged Fleet explains what E Squared plans to do with thousands of Endurance trucks. E Squared hopes to build a van rental business to city governments and other large customers who want to switch to zero-emission vehicle fleets. Grosse says he has $ 8 billion in capital commitments to support the vehicle registration program, although he does not provide details on who provides the capital or on what terms.

“This is a brand new program, so we haven’t recruited anyone yet,” Grosse told Charged Fleet in February. He was hoping to start signing up clients in the next few months.

In short, it is certainly possible that E Squared will eventually order 14,000 Lordstown vans on behalf of customers. But it seems overkill to count that as 14,000 pre-orders.

Another Lordstown customer highlighted by Hindenburg was Innervations LLC, an electric vehicle company that has placed an early pre-order for 1,000 Lordstown trucks. The company appears to have only a handful of employees and its mailing address is in a UPS store.

When we tried to contact Innervations we were directed to David Hein, who did not return our calls and emails requesting comment. But Hein told Hindenburg that Innervations itself was not planning to buy trucks from Lordstown. Rather, the role of the company was to promote the truck to others. He said if a customer indicated an interest in purchasing a Lordstown truck, the company would direct them to Lordstown to place the order.

“We are not involved in the actual order,” Hein reportedly told Hindenburg. We’ll update this story if we hear from Hein and learn more about Innervations’ plans.

“We are absolutely not aware of it”

Hindenburg did spot checks of small Lordstown customers and found a number of orders that didn’t look particularly serious:

• The Catholic Cemeteries Association pre-ordered 40 trucks from Lordstown, but its CEO told Hindenburg: “I’m not committing to anything. I have made a commitment to consider buying vehicles. commit to anything. “
• Lordstown listed Summit Petroleum as a client, but its chairman said “for us it’s really just a look-see [and] I don’t know enough about them to be honest – we want to assess them on their merits. “
• When Hindenburg contacted another supposed Lordstown customer, cloud service provider Grid-X, its CEO told Hindenburg: “We are absolutely unaware of this. I don’t know anything about LMC or Lordstown support. Endurance.”
• The mayor of Ravenna, a town in Ohio near Lordstown, said he was “asked to write a letter of support” to help back Lordstown’s offer to take over a former GM plant and save jobs in the region. The city plans to order 15 trucks from Lordstown, but the mayor said he made no commitment to purchase any vehicles and that purchasing 15 vehicles was “totally impossible” for a city the size of Ravenna.

One of Lordstown’s biggest customers is Duke Energy, which has officially pre-ordered 500 trucks. However, Hindenburg says Duke is not legally obligated to purchase vehicles. And a spokesperson said Duke wanted to “see the truck and kick the tires before buying that many.”

To be fair to Lordstown, it’s no surprise that no one wants to enter into binding contracts to buy vehicles that don’t yet exist. Other auto startups, including Tesla, have taken non-binding pre-orders for vehicles that have not yet entered production.

But Lordstown appears to be making unusual efforts to book pre-orders. Burns’ claim that the orders were “very serious” seems difficult to reconcile with the non-binding comments from some customers – or the fact that some supposed big customers don’t plan to use the trucks themselves, but seek rather to sell them or rent them to others.