Lordstown (RIDE) in Choppy Waters After CEO & CFO Quit, Shares Slide
Lordstown Motors Corporation RIDE revealed yesterday that Steve Burns, its founder, chairman and chief executive officer, and Julio Rodriguez, its chief financial officer are voluntarily resigning from the company. This shocking news is the latest fallout for the electric-truck maker which has had an embattled last few months, wherein it warned having insufficient capital and was accused of fraud by the short-selling firm Hindenburg Research.
Resultantly, shares of the company tumbled 18.8% yesterday to close the session at $9.26.
Lordstown failed to provide a plausible explanation for the departure of Burns and Rodriguez. Meanwhile, Angela Strand, Lordstown’s lead independent director, has been appointed as the executive chairwoman and would oversee the firm’s transition until a permanent replacement is found. Becky Roof would take up the role of interim CFO, effective immediately.
Lordstown to Bite the Dust?
Lordstown, an electric light duty truck start-up focusing on the commercial fleet market, is another recent SPAC IPO in the electric vehicle (EV) space.
The Ohio-based electric truck maker made its NASDAQ debut on Oct 26, 2020, upon completion of the reverse merger with DiamondPeak Holdings Corp.
Boasting 600 horsepower and a range exceeding 250 miles on a single recharge, Lordstown Endurance is one of the most anticipated electric pick-ups. The company expects production of the Endurance to commence this September, with deliveries to begin in the first quarter of 2022. The company plans to manufacture the Endurance at a former General Motors GM plant in Lordstown, OH.
In January, Lordstown claimed to have secured more than 100,000 preorders for its Endurance. However, in a report issued in March, Hindenburg had charged fraud allegations on Lordstown. Per these allegations, the company has misled investors and consumers about the demand for its upcoming electric pick-up truck. The report also noted that the number of pre-orders for Endurance was greatly exaggerated, and that Lordstown might have paid consultants to generate fictitious preorders. In fact, the report also questioned the viability of the technology utilized in the Endurance, and as well as the company’s ability to start production of the Endurance in September 2021.
This was followed by Lordstown’s acknowledgment that the United States Securities and Exchange Commission (SEC) had commenced an investigation on the company with regards to the allegations made by Hindenburg. Moreover, in response, the Lordstown board of directors established a Special Committee of independent directors to investigate the allegations made in the report.
The findings of the committee’s investigations were released by the company yesterday, the same day the news of Burns’ and Rodriguez’s resignations surfaced.
The investigation concluded that the Hindenburg report was false and misleading for most significant matters. The committee claimed to have found no issues with the viability of Lordstown Motors’ technology and timeline to the start of production. Nevertheless, the investigation did point out flaws regarding the accuracy of statements pertaining to the pre-orders for the Endurance truck.
The internal investigation found that some preorders — non-binding letters of intent that require only a signature — had been secured from companies that did not intend to purchase the vehicle, while other firms that had signed letters of intent did not have enough resources to complete the purchase.
Apart from this, the company has ever since been struggling to ramp up production of the Endurance. In a conference call in May, Lordstown’s former CEO Burns said the company had insufficient capital needed to produce the more than 2,000 units it intended to by the end of this year, and hence, management had slashed its production targets.
In fact, last week, the electric-startup revealed that it did not have enough cash on hand to commence the commercial production of its debut pick-up truck at scale. The company, in fact, raised doubts about its ability to meet the financial obligations over the next year. Per management, the ability to do so largely depended on whether or not it could begin the commercial production of the Endurance.
The company even stated that the anticipated Endurance production in 2021 would be limited and needed additional funding to reach full-scale commercial production in 2022 as contemplated by its business plan. This raised red flags about Lordstown’s ability to continue as a going concern without additional funding.
Lordstown, with no sellable product as of now, aspires to enter a highly competitive genre of the EV market, with electric pick-up trucks coming from big names like Tesla TSLA and Ford F among others. Nonetheless, the abovementioned series of unfortunate events and challenges faced by Lordstown make its chances of survival highly speculative and questionable.
Lordstown carries a Zacks Rank of 4 (Sell), currently.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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