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News Analysis: Nikola tormentor Hindenburg Research opens fire on Lordstown Motors

Short seller set on cratering LMC stock succeeded at electric truck startup

Short seller Hindenburg Research trained its sights on Lordstown Motors Corp., alleging the startup electric pickup truck maker is a "mirage" of phony orders unable to produce trucks in the near term. (Photo: Lordstown Motors)

Here we go again.

Almost six months to the day after its broadside alleging fraudulent business practices at startup Nikola Motors (NASDAQ: NKLA), short seller Hindenburg Research is firing on electric pickup truck startup Lordstown Motors Corp. (NASDAQ: RIDE). Similar claims. Different details.

Hindenburg was enormously successfully — and partially validated by Nikola’s own internal investigation finding that founder Trevor Milton misrepresented facts about Nikola’s technology and capabilities. A shadow yet hangs over Nikola as federal securities and criminal investigations continue.

The Hindenburg report on Lordstown said: 

  • Customers who reserved hundreds of trucks from LMC have no intention of buying them. And were never told they had to take delivery. 
  • LMC is a “mirage” that paid outside consultants to pad the order numbers to increase investor confidence.
  • Founder Steve Burns used unethical and deceptive business practices and untested components to make the electric commercial pickup truck called Endurance. 

And the report raises questions about how much technology the company has, just as Hindenburg did at Nikola. It cites specifics of a lawsuit alleging LMC stole at least some intellectual property and poached employees from another startup electric vehicle (EV) maker.

‘Half-truths and lies’

Burns told The Wall Street Journal the Hindenburg report contained “half-truths and lies.” He said Hindenburg is trying to hurt the stock before the company reports its first quarterly update as a publicly traded entity next week. Burns did not return a call from FreightWaves.

LMC operates a 55-year-old former General Motors (NYSE: GM) plant in northeast Ohio that the automaker closed in March 2019. GM essentially gave the massive 6.2-million-square-foot assembly complex to LMC in June. And it loaned Burns money for retooling. 

The moves ended critical tweets of GM by then-President Donald Trump;. He urged CEO Mary Barra to find a new product for the plant. It is located in the Mahoning Valley that overwhelmingly voted for Trump in the 2016 presidential election. 

GM also invested $25 million in cash in LMC. That is despite plans for its own full-size electric pickup. The automaker received 7.5 million shares of LMC stock at the closing last October of a business combination with special purpose acquisition company (SPAC) Diamond Peak Holdings Corp.

LMC stock craters Friday

As Hindenburg intended, Lordstown stock dropped Friday. It closed down 16.54% at $14.78.

Hindenburg specifically alleged:

  • A 14,000-truck deal from E Squared Energy, supposedly representing $735 million in sales. E Squared is based out of a small residential apartment in Texas that doesn’t operate a vehicle fleet.
  • A 1,000-truck, $52.5 million order from a two-person startup that operates out of a Regus virtual office with a UPS Store mailing address. Hindenburg said the owner acknowledged the “preorder” was primarily a marketing relationship.
  • Former employees and litigation records reveal that Burns began paying consultants for every truck preorder as early as 2016. He was still CEO at Workhorse Group. LMC licensed the technology to build the Endurance electric pickup from Workhorse.
  • Former employees also said the company has completed none of its needed testing or validation, including cold weather testing, durability testing and Federal Motor Vehicle Safety Standards testing required by the National Highway Traffic Safety Administration.
  • Since Lordstown went public in October 2020, executives and directors have sold about $28 million in stock. That includes $8 million in the month before public knowledge that LMC’s first test on public roads in January ended with the vehicle catching fire after 10 minutes.

Burns confirmed LMC paid consultants to generate preorders, understood to be nonbinding as a way to assess market demand. He denied misrepresenting those as firm orders, though he told Yahoo Finance in January that LMC had “presold 100,000 electric pickup trucks.” Burns described the reservations as “very serious orders” when pressed by CNBC’s Jim Cramer.

“We are not stating these are orders and have never stated that,” Burns told the WSJ on Friday.

From Workhorse to Lordstown

Burns’ audacious play to take over Lordstown, which once built Chevrolet Cruze sedans on three shifts, played as a White Knight tale. 

With the plant closing and GM under political pressure ahead of contentious United Auto Workers (UAW) negotiations in late-summer 2019, offloading the plant was a no-brainer. Even backing a $40 million mortgage and retooling costs made sense.

The UAW struck GM nationally for 40 days, costing the automaker about $2 billion. Ultimately, the UAW went along with the closing, clearing the way for Burns to start LMC.

Burns went for months trying to find the estimated $300 million he would need to get a portion of the massive assembly complex up and running. Diamond Peak appeared on the scene as the SPAC with its investors’ blank check just as the rush to merge with EV makers accelerated.

Burns resigned as CEO of Workhorse in February 2019. On his way out, he was tasked by the board with selling his pet project, a two-seat vertical takeoff and landing (VTOL) aircraft called the Surefly. Estimated by one Workhorse investor to be worth $50 million, the Surefly sold for $4 million.

Workhorse gets a taste

Even as he planned for the electric pickup, Burns and electric van maker Workhorse maintained ties. Workhorse licensed its electric pickup technology for a vehicle it lacked the resources to build to LMC in exchange for 10% equity and royalties on any of 6,000 Workhorse pickup orders LMC converted to Endurance sales.

And if Workhorse won a U.S. Postal Service contract for Next Generation Delivery Vehicles — it didn’t — Lordstown would have been the contract manufacturer. Workhorse listed the value of its Lordstown stake at $330 million in its recent Q4 earnings.

Hindenburg claims Burns was pushed out of Workhorse, which he founded in 2007 as AMP Electric. Current Workhorse CEO Duane Hughes did not deny in a March 2019 interview that Burns got a shove.

Hughes and former Workhorse CEO James Taylor both regard Burns as a visionary unable to focus on a single project, like the Workhorse composite body electric van that floundered under his leadership.

“He’s unencumbered by facts,” Taylor told FreightWaves in a recent interview. “Steve has a huge advantage that he doesn’t know what he doesn’t know. Now he’s jumped into the big leagues. And it’s a big advantage being an entrepreneur and being the cheerleader when you don’t know all the blood and guts and you just leave that to your guys.”

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Click for more FreightWaves articles by Alan Adler.

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Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.