Startup electric pickup truck maker Lordstown Motors Corp. (LMC) will go public in a reverse merger that will bring it the much-needed cash to retool a former General Motors (NYSE: GM) car plant.
The deal with DiamondPeak Holdings Corp. (NASDAQ: DPHCU) will bring $675 million to LMC at a valuation of $1.6 billion. Assuming the merger closes in the fourth quarter, LMC will trade under the ticker symbol RIDE.
“We evaluated hundreds of companies for more than a year and Lordstown stood out as a differentiated, high-growth company at the confluence of electric vehicles and light-duty trucks,” David Hamamoto, DiamondPeak Chairman and CEO said.
The short LMC journey to becoming a public entity includes a history of tweets by President Donald Trump, rancor by the United Auto Workers (UAW) at the closing of the GM plant in March 2019, and Vice President Mike Pence’s presence at the reveal of the Endurance commercial fleet-focused electric pickup in June.
LMC is effectively a spinoff of another electric truck company — Workhorse Group Inc. (NASDAQ: WKHS).
The Workhorse factor
Lordstown CEO Steve Burns is the former CEO of Workhorse. He is resurrecting a project that Workhorse did not have the money to build but stands to profit from if LMC succeeds.
Burns, who left Workhorse in February 2019, approached GM about buying the 6.2-million-square-foot Lordstown plant in northeast Ohio. GM said in late 2018 it would close the sprawling complex because of falling demand for the compact Chevrolet Cruze passenger cars made there.
President Trump pressured GM to find a new product for the plant in an area that helped him win Ohio in the 2016 presidential election, GM agreed to sell the plant to Burns in May 2019. Trump excitedly tweeted the deal before LMC or GM announced it.
By the closing of the deal in November 2019, GM agreed to front $40 million for a mortgage and retooling. Burns meanwhile had licensed the technology to its Workhorse W-15 electric pickup, which underpins the Endurance.
The W-15 technology also would form the basis of a United States Postal Service (USPS) next-generation delivery vehicle if Workhorse is awarded all or part of a $6 billion contract for which it is a finalist. Lordstown would build those vehicles under contract from Workhorse, which received 10% equity in LMC in exchange for the W-15 technology. Workhorse also gets a 1% royalty on the first 200,000 Endurance trucks sold.
News of the LMC reverse merger sent Workhorse shares soaring intraday Monday. They traded at $17.28, up 11.34%
Production in 2021
LMC plans commercial deliveries of Endurance models in the second half of 2021. That is the same timeframe as electric pickups from startups Rivian, Nikola and Tesla. Only Lordstown is focused on commercial customers such as manufacturing, contracting, utilities, transportation, agriculture and delivery.
At a price of $52,500 before any tax credits, the Endurance gets the equivalent of 75 miles per gallon, can travel 250 miles between chargings and tow 7,500 pounds. It differs from competitors in using electric hub motors in each of the four wheels to power the truck, which has no gears or drive axle.
In a prerecorded call for analysts Monday, Burns said the Endurance would have a 25% lower total cost of ownership (TCO) over five years than a conventionally powered internal combustion engine.
LMC has 27,000 pre-orders for the Endurance worth $1.4 billion. From initial production of 20,000 trucks a year, Burns said LMC’s goal is 100,000 units a year by 2024. The $675 million in cash covers all costs of startup.
The Lordstown complex, which includes metal fabrication and paint facilities is capable of assembling more than 600,000 vehicles a year.
LMC expects breakeven earnings before interest, taxes, depreciation and amortization (EBITDA) in 2022. It expects EBITDA of more than 10% of sales by 2024.
GM in the mix
GM is investing $75 million in the deal That includes $25 million in cash, $20 million in-kind for the plant and equipment that remains and $30 million in operating support, GM spokesman Jim Cain said.
“GM Is excited about the progress LMC has made because we believe the production of the Endurance pickup will help create jobs in the Lordstown community,” GM said in a statement.
The last of 1,400 GM workers were laid off when Lordstown closed in March 2019. GM is planning its own full-size electric pickup, so it may have other reasons for investing in Lordstown, according to Sam Abuelsamid, principal analyst at Guidehouse.
“It could be a guilt payment and a bit of politics to appease,” Abuelsamid told FreightWaves. “It is politically wise for them.”
Institutional investors include Fidelity Management & Research Company LLC, Wellington Management Company LLP, Federated Hermes Kaufmann Small Cap Fund, and funds and accounts managed by BlackRock.
Blank check deal flurry
LMC and DiamondPeak Holdings is the latest in a flurry of so-called blank check company purchases of green transportation startups. Nikola Corp. (NASDAQ: NKLA) piqued investor interest before its reverse merger with VectoIQ, a special purpose acquisition company (SPAC) whose sole purpose was to target a company for merger.
Coincidentally, VectoIQ’s CEO is Steve Girsky, a former GM vice chairman, who is on Nikola’s board of directors.
SPACs have few of the hassles of traditional initial public offerings (IPOs). But they can lead to volatile trading.
Nikola is experiencing that since it emerged as a public company on June 2. Its shares traded at more than $90 a share in the early days. But they have receded to the $30s recently as early investors cashed out large portions of their stock. Those sales plus issuance of new shares created too much supply for demand. That drove down the price.
Another startup in pre-merger status includes Hyliion Inc., whose natural gas-electric hybrid can be fit to any manufacturer’s Class 8 truck. The SPAC Tortoise Acquisition Corp. (NASDAQ: SHLL) raised $325 million in addition to $235 million raised in its IPO. Hyliion would receive all that money when its merger closes as planned later this quarter.