Lordstown Motors CEO Responds To Short Seller; EV Stock Drops 16%

Electric truck startup Lordstown Motors Corporation RIDE has angrily challenged a report from Hindenburg Research that accuses the company of fraudulently marketing itself. 

What Happened: Hindenburg’s report "The Lordstown Motors 'Mirage': Fake Orders, Undisclosed Production Hurdles, And A Prototype Inferno,” details an investigation into how the company promotes itself and its Endurance electric-powered truck.

“Lordstown is an EV SPAC with no revenue and no sellable product, which we believe has grossly misled investors on both its demand and production capabilities,” Hindenburg said, claiming that the company “pointed to its book of 100,000 pre-orders as proof of demand for its proposed EV truck. Our extensive research reveals that the company’s orders appear largely fictitious and used as a prop to raise capital and confer legitimacy.”

The Hindenburg report added that Lordstown paid consultants to generate pre-orders ahead of its initial public offering last October, adding that former Lordstown employees described company founder and CEO Steve Burns as a “con man” or a “PT Barnum” figure.

In an interview with the Wall Street Journal, Burns acknowledged hiring consultants to generate preorders, but said this was done to assess market demand. He told the publication the preorder book was never misrepresented.

“We are not stating these are orders and have never stated that,” he said.

The Journal also highlighted that Lordstown Motors stated it did not have customers or pending orders in a December regulatory filing, noting there was no assurance the nonbinding preorders would transition into sales.

In a January news release, Lordstown Motors said the more than 100,000 reservations it fielded for its Endurance truck were nonbinding.

Burns told the Journal that some of the businesses that placed pre-orders were not fleet operators, but their intermediaries.

“If a guy signed a piece of paper that said ‘I think I can move x-thousand of them,’ we believe them,” he said. “But it’s not in blood. It’s a nonbinding letter of intent.”

What Else Happened: The Hindenburg report also said Lordstown Motors allegedly inked a $735-million deal for 14,000 trucks with E Squared Energy, which Hindenburg said “is based out of a small residential apartment in Texas that doesn't operate a vehicle fleet.”

Tim Grosse, CEO of Texas-based E Squared Energy, came to the defense of Lordstown Motors.

The Hindenburg report said Grosse responded to its inquiries on Lordstown Motors “with a rather Alice-In-Wonderland answer,” insisting that its pre-order was an “estimate” based on Lordstown’s planned production rather than customer demand.

“It’s based primarily on the output of Lordstown,” Grosse said, according to the Hindenburg report. “In the first year they’ll be somewhat limited with only 20,000 vehicles and we have 2,000 on the LOI and second year we have 4,000 and production will be about 40,000. And the third year we’re ramping up to 8,000…That’s what we’re estimating.”

Yet Grosse offered a dismal view of Hindenburg in an interview with the Business Journal of Youngstown, Ohio.

“I think it’s obvious what the report was intended to do,” he said, adding that his company plans to fill all of the orders for Lordship vehicles. “We’re a legitimate service program. We buy vehicles for municipalities and customers who don’t have large budgets to switch to EVs.”

RIDE Price Action: Lordstown Motors shares lost 16.54% Friday, closing at $14.78. 

Lordstown Motors CEO Steve Burns at a September 2020 White House event with former President Donald Trump and the Endurance electric truck. Photo courtesy of the Trump White House Archives.