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Short selling company Hindenburg Research published a new report alleging that electric truck maker Lordstown Motors has overstated customer demand to help fundraise. CEO Steve Burns said Lordstown already has more than 100,000 orders – enough to keep his Ohio plant occupied for more than a year once the company starts production. In reality, these orders are not binding. And Hindenburg says that some of the alleged customers don’t seem to have the financial resources to fulfill their multimillion-dollar orders, even if they want to.
Hindenburg is in the business of short-selling a company’s shares and then publishing damaging research on the company. If the shares fall, the company will make a profit. This strategy seems to work with Lordstown. As I write this, Lordstown’s shares fell about 15% on the day.
The company made its name with an exhibition in September by another electric truck manufacturer, Nikola. Hindenburg’s report revealed that a promotional video for the Nikola One truck “in motion” actually showed him driving down a hill, with the camera tilted slightly so that he appeared to be driving on level ground. Nikola’s shares have fallen about 60 percent since Hindenburg published its initial report.
Nikola and Lordstown are part of a larger phenomenon of companies in the electric vehicle sector – and related sectors, such as dealing with autonomous cars – making their shares public through Special Purpose Acquisition Companies (SPAC). Investors gave some of these companies extremely aggressive valuations, 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 overestimates its initial achievements.
Hindenburg says Lordstown’s order book has too much hot air
In an interview with the Wall Street Journal after Hindenburg’s report, Burns acknowledged that the company’s orders were not binding.
“If a guy signed a piece of paper that said, ‘I think I can move x-thousand of them,’ we believe them. But he doesn’t have blood,” said Burns. “We are not claiming that they are orders and we have never stated that.”
Hindenburg disagrees. The company notes that during an appearance on Jim Cramer’s CNBC show last November, Burns boasted that Lordstown had 50,000 orders. Cramer was impressed.
“It seems that some of those orders are solid – Duke Energy, First Energy – these people are not going to leave,” said Cramer. “They are committed.”
“Okay. Yes. All of them,” Burns replied. He later described them as “very serious orders”.
Hindenburg’s research suggested that some of the requests were not so serious. Last December, a green Texas consulting firm called E Squared placed an order for 14,000 electric Endurance trucks from Lordstown. The E Squared website does not list the company’s employees, and LinkedIn lists only two E Squared employees, including CEO Tim Grosse. An obvious question is how a small consultancy 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 shares”. But he did not respond to follow-up emails or phone calls for details.
A February article in Charged Fleet explained what E Squared is planning to do with thousands of Endurance trucks. AE Squared hopes to build a truck leasing business for city halls and other large customers who want to transition to zero-emission vehicle fleets. Grosse says he has $ 8 billion in capital commitments to support the vehicle licensing program, although he does not provide details on who is providing the capital or on what terms.
“This is an entirely new program, so we haven’t hired anyone yet,” Grosse told Charged Fleet in February. He hoped to start enrolling customers in the coming months.
In short, it is certainly possible that E Squared will end up ordering 14,000 Lordstown pickups on behalf of customers. But it seems like an exaggeration to count this as 14,000 orders.
Another Lordstown customer highlighted by Hindenburg was Innervations LLC, an electric vehicle company that pre-ordered 1,000 Lordstown trucks. The company appears to have only a handful of employees and its mailing address is located in a UPS store.
When we tried to contact Innervations, we were directed to David Hein, who did not return our calls and emails asking for comments. But Hein told Hindenburg that Innervations itself did not plan to buy any trucks from Lordstown. Instead, the company’s role was to promote the truck to others. He said that if a customer showed interest in buying a truck from Lordstown, the company would direct him to Lordstown to actually place the order.
“We are not involved in the actual request,” Hein told Hindenburg. We will update this story if we hear back from Hein and learn more about Innervations’ plans.
“We are not aware of that”
Hindenburg did local checks on smaller Lordstown customers and found a series of orders that didn’t seem particularly serious:
- The Association of Catholic Cemeteries ordered 40 trucks from Lordstown, but its CEO told Hindenburg: “I am not committed to anything. I have committed myself to considering buying vehicles. I would have many questions before I commit to anything.”
- Lordstown listed Summit Petroleum as a customer, but its president said that “for us, it’s really just a look [and] I don’t know enough about them to be honest – we want to evaluate them on their merits. “
- When Hindenburg contacted another alleged customer of Lordstown, a Grid-X cloud service provider, its CEO told Hindenburg, “We are not completely aware of this. I don’t know anything about LMC or Lordstown Endurance pick-up.”
- The mayor of Ravenna, an Ohio town near Lordstown, said he was “asked to write a letter of support” to help support Lordstown’s offer to take over an old GM factory and save jobs in the area. The city is planning to order 15 trucks from Lordstown, but the mayor said he has not committed to buying any vehicles and that buying 15 vehicles is “totally impossible” for a city the size of Ravenna.
One of Lordstown’s most important customers is Duke Energy, which has officially ordered 500 trucks. However, Hindenburg says Duke is not legally required to buy any vehicles. And a spokesman said Duke wants to “see the truck and kick the tires before we buy so many.”
To be fair to Lordstown, it is not surprising that no one wants to make binding contracts for the purchase of vehicles that do not yet exist. Other automotive startups – including Tesla – have accepted non-binding orders for vehicles that have not yet gone into production.
But Lordstown seems to be working hard to pre-order. Burns’ claim that the orders were “very serious” seems difficult to reconcile with the non-compromising comments of some customers – or the fact that some would-be large customers do not plan to use the trucks, but seek to sell or rent them them to others.