Republished from Almost Daily Grant’s, a Grant’s Interest Rate Observer daily newsletter.
Under The Hood
A Different Kind Of U-Turn. Electric Vehicle Hopeful Lordstown Motors (RIDE On The Nasdaq) Disclosed In A Filing Today That Existing Production Agreements With Customers “Do Not Represent Binding Purchase Orders Or Other Firm Purchase Commitments.”
That Represents Quite A Reversal From Management’s Assessment From Just Two Days Ago. “Currently, We Have Enough Orders For Production For 2021 And 2022,” Lordstown President Rich Schmidt Declared Tuesday At An Event Hosted By The Automotive Press Association. “These Are Firm Orders For The Next Two Years.” Asked About The Status Of Lordstown’s Order Book, Schmidt Had This To Say: “I Don’t Know The Exact Facts Of The Legal Aspect Of That, But They Are Basically Binding Orders That Are Committed Here In The Last Two Weeks, Reconfirmed Orders. They’re Pretty Solid, And I Think That’s On The Light Side Or Conservative Side.”
The State Of Lordstown’s Backlog Took On A New Urgency Last Week. On June 8, The Company, Which Raised $600 Million Last Fall Via A Merger With Special Purpose Acquisition Company DiamondPeak Holdings Corp., Filed An Amended Form 10-K With A Warning That Cash Was Running Low, Placing RIDE’s Status As A Going Concern At Risk In The Absence Of Additional Fundraising. Six Days Later, CEO Steve Burns And CFO Julio Rodriguez Tendered Their Resignations, Following An Internal Investigation Into Published Accusations From Short Seller Hindenburg Research Terming The Company’s Order Book “Largely Fictitious And Used As A Prop To Raise Capital And Confer Legitimacy.”
Other Details Suggest Things May Not Be On The Up-And-Up At The Two-Year Old, Pre-Revenue Startup, Which Commanded A Market Cap Of As Much As $5 Billion In February. That Revised 10-K Filing Also Disclosed That The Lordstown C-Suite Determined That “Material Weaknesses” In The Firm’s Internal Controls Existed As Of Dec. 31, Just Nine Weeks After Completing Its Merger With DiamondPeak And Less Than A Month After It Had Filed Its Form S-1 With The SEC. In Addition, Lordstown Revealed That An Inquiry From The Securities And Exchange Commission, Characterized In The Original 10-K As A “Request. . .For The Voluntary Production Of Documents And Information,” Was Instead A Formal Investigation, In The Form Of A Pair Of Subpoenas.
There’s More. Citing Analysis From Wharton Associate Professor Dan Taylor, Journalist And CPA Francine McKenna Relayed Last Week That Multiple Members Of The Lordstown Executive Office, Including The Now-Departed CFO, Traded Some $8 Million Worth Of Company Shares More Than A Month After The End Of The Fourth Quarter And Within 31 Days Of The March 17 Earnings Announcement, An Event Which Spurred A 14% Decline In RIDE Shares Thanks To A Larger-Than Expected Quarterly Loss. Typically, Executives Would Consider That Stretch To Be A “Quiet Period” And Refrain From Trading In Company Shares, In Order To Avoid The Appearance Of Improperly Acting On Insider Information. For More From Taylor On Problems With The Existing Regime Of 10b5-1 Executive Stock Sale Plans, See The March 19 Edition Of Grant’s Interest Rate Observer.
Since Its Inclusion In A Bespoke Basket Of SPAC-Affiliated Firms In The Dec. 25 Grant’s Analysis “Short This Index,” RIDE Shares Have Duly Downshifted By 50%, While The Index As A Whole Has Pulled Back By 41%. Electric Vehicle Concerns Took Center Stage In That Gauge Of Picks-To-Not-Click, With Five Of The 10 Components Pursuing EV-Centric Business Models.
Even With Those SPAC-Related Hiccups, The S&P Kensho Electric Vehicles Index Sports A $1.65 Trillion Market Cap, Up A Cool 135% From A Year Ago. Yet Lordstown’s Troubles Reflect The Contrast Between Widespread Investor Exuberance Towards EVs And Unpleasant Realities. “This Is A Massively Capital Intensive Industry,” Jeff Schuster, President Of Global Forecasting At LMC Automotive, Told The Wall Street Journal Last Week. “That’s Exponentially Higher When You’re Talking About A Startup.”
Meanwhile, Industry Mainstays Are Directing Their Substantial War Chests Towards The Electrification Movement, Further Complicating Life For The Bevy Of Hopefuls. Reuters Reported Yesterday That General Motors (Which Has Invested $75 Million In Lordstown) Now Plans To Undertake A $35 Billion Capital Commitment Towards Autonomous Vehicles Over The Next Five Years, Up 30% From A Prior Estimate Three Months Ago, With Electric Vehicles A Primary Lynchpin Of That Strategy. That Comes Less Than A Month After Rival Ford Motor Co. Announced It Will Allocate $30 Billion In EV-Focused Capital Expenditures Through 2030, Up From A Prior Projected Outlay Of $22 Billion.
