Just before the market closed on Tuesday, the electric vehicle start-up filed an amendment to its 2020 annual report with the SEC and expressed “substantial doubt” that the “operation” will continue.
LORDSTOWN – Just weeks away from an open house for investors and analysts, Lordstown Motors Corp. told investors the company might not go the year without new funding.
He was also subpoenaed by the United States Securities and Exchange Commission in connection with its public merger last year as well as its pre-orders for its all-electric van, the Lordstown Endurance, which a sales firm says uncovered, has been fabricated.
Just before the stock market close on Tuesday, the electric vehicle startup filed an amendment to its annual report 2020 to the SEC and voiced its “substantial doubt” that it will continue to “operate,” a term that alerts investors that the company is in financial trouble and shareholders are in danger.
The company had about $ 587 million in cash or cash equivalents and a deficit of $ 260 million at the end of March. The company lost $ 125 million in the first quarter.
“Our ability to continue operating depends on our ability to complete the development of our electric vehicles, obtain regulatory approval, begin production on a commercial scale and initiate sale of such vehicles,” the file said. “We believe that our current level of cash and cash equivalents is not sufficient to fund commercial scale production and start-up sales of such vehicles. “
Following the first report from the new filing, shares of Lordstown Motors (NASDAQ: RIDE) fell nearly 28% in the last half hour of trading, to close at $ 11.22. Just half an hour before closing it was $ 15.50.
No company comments; diminished goals
A Lordstown Motors spokesperson declined to comment directly on Tuesday’s case and instead referred to CEO Steve Burns’ comments during an investor appeal in May.
It was then that Burns announced the company’s future cash flow concerns, but he also underscored the company’s commitment to meeting its end-September goal of starting limited production of the Endurance. Even that commitment was only to build 1,000 units; half of the company’s initial goal.
“Worst, worst case: We’re still making pickup trucks this year,” Burns said.
The company’s current budget allows for a limited edition of Endurance later this year, according to Tuesday’s filing. He had previously planned for mass production to begin in September.
“Additional funding is needed for production in 2022 and beyond and to continue our ramp up towards full commercial production. The amounts required can be significant, ”reads the file.
Executives are now delaying some spending to keep operations limited – choosing to focus on retooling efforts at the 55-year-old former General Motors plant – and looking for alternative funding sources like the news broadcast equity or new debt – or a hybrid of the two, called “mezzanine” debt – to obtain new lines of credit or enter into agreements with strategic partners.
Lordstown Motors announced at the end of last year its partnership with Camping World, which is committed to building a nationwide endurance service network.
“As we seek additional sources of funding, there is no guarantee that such funding would be available to us on favorable terms or not at all,” read Tuesday’s filing.
“If we are not able to raise additional capital in the short term, our operations and production plans will be reduced or reduced and, if the funds raised are insufficient to provide a gateway to full commercial production and generation of funds sufficient from operations, our proper functioning and growth would be hampered.
This retooling job at the Lordstown plant, although “nearing completion”, according to the company, experienced delays and cost overruns.
“These risks could be exacerbated because we are attempting to modify a complex, originally designed to build traditional internal combustion engine vehicles, to support emerging technologies behind electric vehicles,” the file said.
Lordstown Motors is also seeking a generally available federal loan to re-equip manufacturing facilities with new vehicle technologies – this is the same loan that Burns says helped establish electric vehicle maker Tesla Motors – but there is no no guarantees as to whether it will get the funding, how much it will be or when they can expect it.
Lordstown Motors executives have yet to respond directly to a damning report released in March by a short-selling company alleging that the company’s alleged 100,000 pre-orders for Endurance are largely fictitious and that the company is far from its September production target.
One of the risks described in the amended dossier is that the company has “no current customers and no pending orders” for Endurance, which is marketed to vehicle fleet buyers. During the May investor call, Burns claimed the company had converted around 30,000 non-binding letters of intent into purchase agreements, which he said were more substantial.
The company also faces at least six separate lawsuits filed on behalf of investors alleging they were misled or executives abandoned their shares before they fell.
The company also revealed on Tuesday that the SEC has issued two subpoenas for files relating to its October 2020 merger with DiamondPeak Holdings Corp. – which made Lordstown Motors a publicly traded company – and its vehicle preorders.
“The company is responding to SEC inquiries and cooperating with its investigation,” the file read.
What is the valley takeaway
U.S. Representative Tim Ryan of Howland, D-13th, a staunch supporter of the Valley’s efforts to rebrand itself as an electrification hub, was calm on Tuesday, declining to comment Mahoning questions.
Lordstown Mayor Arno Hill said the village has no ‘nickel in the game’ because it does not offer the company any tax breaks. Neither does Trumbull County.
“I’m going to have to go with ‘wait and see’,” Hill said Mahoning questions Tuesday. “I’m prepared for the worst, but the worst part is that they are gone, just like GM was gone.
And in its place, others have appeared, such as Ultium Cells and TJX HomeGoods, which opened quietly at the end of March, according to the Business Journal.
In December, the Ohio Tax Credit Authority approved Lordstown Motors for a 1.6% 15-year tax credit worth $ 20 million, hoping it will create 1,570 new full-time jobs .
Lordstown Motors currently employs around 320 full-time workers who are preparing the plant for series production, according to its documents with the SEC. The company expects to “dramatically” increase its number of employees as production approaches.
Timothy O’Hara, a former member of the United Auto Workers leadership who represented the thousands of GM Lordstown workers laid off when the automaker closed the plant in March 2019, said he believed most members of the Local 1112 saw this coming.
“But it’s another economic blow to the Mahoning Valley if [Lordstown Motors] ultimately fails and that’s a shame, especially since GM should have reinvested the money they spent on the [Ultium Cells] battery factory and kept GM Lordstown open and employing 5,000 union workers in the complex and parts suppliers, ”he said. Mahoning questions Tuesday.
O’Hara refers to GM’s $ 2.3 billion joint venture with South Korean LG Chem to make batteries that will power part of GM’s electric vehicle lineup. The plant, currently under construction near the Lordstown Motors complex, is expected to start up in mid-2022 and create more than 1,000 jobs.
Even with the grim predictions of Endurance, Ultium Cells still gives Rick Stockburger cause for optimism. Stockburger, president and CEO of BRITE Energy Innovators in downtown Warren, said Ultium’s proximity to the 6.2 million square foot former GM plant means “it would make a lot of sense. ”For the region to continue to pursue the prospects for electrification of vehicles.
“I think Lordstown Motors was sensitive to the stock market and what it looks like and how things change. They needed to capitalize more,” he said. Mahoning questions Tuesday.
“Somehow an electric vehicle, car or truck, will be produced from this factory and I am very happy that BRITE and the region are here to support it,” said Stockburger.
Guy Coviello, President and CEO of the Youngstown / Warren Regional Chamber, expressed optimism for the start.
“Whenever there is a new technology, there will be several hitches. Plus, it’s a very competitive industry,” he said. Mahoning questions. “We certainly hope Lordstown Motors will generate the capital it needs to produce vehicles for the long term.”
Almost a third of all available Lordstown Motors shares have been shorted, according to Barron. This means that investors borrowed and then sold those stocks, expecting to buy them back later once the stock fell in value and earn money.
At the start of trading on Tuesday, Lordstown shares had fallen about 33% year-to-date, Barron’s reported.