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Short-selling firm Hindenburg Research released a new report alleging that electric vehicle startup maker Lordstown Motors exaggerated customer demand to help raise funds. CEO Steve Burns has claimed Lordstown already has more than 100,000 pre-orders – enough to keep its Ohio facility busy for more than a year once the company begins production. In reality, these pre-orders are non-binding. And Hindenburg claims that even if they wanted to, some of the supposed customers didn't have the financial resources to fulfill their multi-million dollar orders.
Hindenburg is in the business of selling shares in a company and then releasing harmful research about the company. If the stock falls, the company makes a profit. This strategy seems to work with Lordstown. As of this writing, Lordstown's stock is down about 15 percent that day.
The company made a name for itself with an exposé from another electric truck manufacturer, Nikola, in September. Hindenburg's report revealed that a promotional video of the Nikola One truck "in motion" actually showed it rolling down a hill with the camera tilted slightly so that it appeared to be driving on level ground. Nikolas shares have fallen about 60 percent since Hindenburg published its first report.
Nikola and Lordstown are part of a larger phenomenon of electric vehicle companies – and related sectors like lidar for self-driving cars – that are listing their stocks through Special Purpose Acquisition Companies (SPAC). Investors have been extremely aggressive in rating some of these companies, betting that one of them will be the next Tesla. This frothy financial environment means there are great potential rewards for a startup that surpasses its early successes.
"We will be making a full and thorough statement in the coming days," Lordstown said in an email to Ars. "If we do, we will absolutely refute the Hindenburg research report."
According to Hindenburg, Lordstown's order book has a lot of hot air
In an interview with the Wall Street Journal after Hindenburg's report, Burns admitted that the company's pre-orders were non-binding.
"If a man signed a piece of paper that said, 'I think I can move x thousand of them,' we believe them. But it's not in the blood," said Burns. "We do not claim that these are orders and we have never said that."
Hindenburg disagrees. The company notes that Burns boasted during an appearance on Jim Cramer's CNBC show last November that Lordstown had 50,000 pre-orders. Cramer was impressed.
"It seems like some of those orders are coming from solid ones – Duke Energy, First Energy. These people are not going to go away," Cramer said. "They are obliged."
"Right. Yes. Everyone," Burns replied. He later described them as "very serious orders".
Hindenburg's research indicated that some of the orders weren't so serious. Last December, a Texas consultancy called E Squared ordered 14,000 Lordstown Endurance electric vehicles. The E Squared website doesn't list the company's employees, and LinkedIn only lists two employees for E Squared, including CEO Tim Grosse. An obvious question is how a small consulting firm will fund the purchase of 14,000 trucks.
In an email to Ars, Grosse condemned the Hindenburg report as a "smear campaign to profit from short sales of the stock". But he didn't respond to follow-up emails or phone calls for details.
A February article in Charged Fleet explained what E Squared is up to with thousands of endurance trucks. E Squared hopes to build a pick-up rental business to city councils and other large customers looking to move to zero-emission fleets. Grosse claims he has $ 8 billion in capital commitments to support the vehicle licensing program, but does not provide details of who is providing the capital or on what terms.
"This is a brand new program, so we haven't registered anyone yet," Grosse told Charged Fleet in February. He hoped to gain customers in the next few months.
In short, it's entirely possible that E Squared will at some point order 14,000 Lordstown pickups on behalf of customers. But it seems like a stretch to count that as 14,000 pre-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 a handful of employees and its mailing address is in a UPS store.
When we tried to contact Innervations we were referred to David Hein who did not return our calls and emails with a request for comment. But Hein told Hindenburg that Innervations itself has no plans to buy trucks from Lordstown. Rather, the company's job was to make the truck known to others. He said if a customer showed interest in buying a Lordstown truck, the company would refer them to Lordstown to actually place the order.
"We are not involved in the actual order," Hein allegedly told Hindenburg. We'll update this story as we hear from Hein and learn more about Innervations' plans.
"We're not even aware of that."
Hindenburg has screened smaller Lordstown customers on site and found a number of orders that don't seem particularly serious:
- The Catholic Cemeteries Association has pre-ordered 40 Lordstown trucks, but their CEO told Hindenburg, "I'm under no obligation. I have made a commitment to think about buying vehicles. I would have a lot of questions before I make a commitment. "
- Lordstown has listed Summit Petroleum as a client, but its president said, "It's really just a look to us (and) I don't know enough about them to be honest – we want to rate them on their merits." "
- When Hindenburg contacted another supposed Lordstown customer, the cloud service provider Grid-X, his CEO said to Hindenburg: "We are not even 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 support Lordstown's offer to take over a former genetically engineered plant and save jobs in the area. The city reportedly plans to order 15 Lordstown trucks, but the mayor said he had made no commitments to purchase vehicles and that buying 15 vehicles was "totally impossible" for a city the size of Ravenna.
One of Lordstown's best-known customers is Duke Energy, which has officially pre-ordered 500 trucks. However, according to Hindenburg, Duke is not legally required to buy vehicles. And a spokesman said Duke "wants to see the truck and kick the tires before we buy that many".
To be fair to Lordstown, it is not surprising that no one wants to enter into binding contracts to purchase vehicles that do not yet exist. Other automotive startups – including Tesla – have taken non-binding pre-orders for vehicles that have not yet gone into production.
But Lordstown seems unusually hard to push for pre-orders. Burns' claim that the orders were "very serious" seems difficult to reconcile with the noncommittal comments from some customers – or the fact that some supposedly large customers plan on not using the trucks themselves, but instead using them sell or lease to others.