Shares of Lordstown Motors were hit in pre-market trading on Monday morning after Chief Executive Officer Steve Burns and Chief Financial Officer Julio Rodriguez resigned from the company, following the results of an internal investigation catalyzed by allegations by short seller Hindenburg Research back in May.
In a PR called "Lordstown Motors Announces Leadership Transition", the company said the executive shuffle was due to a "transition from the R&D and early production phase to the commercial production phase of its business." The company appointed Angela Strand executive chairwoman and Becky Roof as interim CFO, the release says:
To that end, Lordstown Motors Lead Independent Director Angela Strand has been appointed Executive Chairwoman of the Company, and will oversee the organization’s transition until a permanent CEO is identified, and Becky Roof, will serve as Interim Chief Financial Officer. Steve Burns has resigned as Chief Executive Officer and from the Company’s Board of Directors, and Chief Financial Officer Julio Rodriguez has also resigned. All changes are effective immediately and the Company has engaged an executive search firm to identify a permanent CEO and CFO.
In a separate PR called "Lordstown Motors Reports Results Of Special Committee Investigation Of Hindenburg Research Report", the company released the findings of Sullivan & Cromwell LLP, who was tasked with looking in Hindenburg's allegations.
"The Special Committee’s investigation concluded that the Hindenburg Report is, in significant respects, false and misleading," the PR reads, before admitting: "The investigation did, however, identify issues regarding the accuracy of certain statements regarding the Company’s pre-orders," the PR reads.
"Lordstown Motors made periodic disclosures regarding pre-orders which were, in certain respects, inaccurate," the PR reads.
First, the company admitted that some of its pre-orders were to "influencers".
"Lordstown Motors has stated on several occasions that its pre-orders were from, or “primarily” from commercial fleets. In fact, many pre-orders were obtained from (i) fleet management companies or other end users that indicated interest in purchasing Endurance trucks, similar to commercial fleets, and (ii) so-called “influencers” or other potential strategic partners that committed to attempt to secure pre-orders from other entities, but did not intend to purchase Endurance trucks directly.
And also stated that "One entity that provided a large number of pre-orders does not appear to have the resources to complete large purchases of trucks. Other entities provided commitments that appear too vague or infirm to be appropriately included in the total number of pre-orders disclosed."
Recall, Lordstown was the target of short seller Hindenburg Research back in May of this year, who released a report called "The Lordstown Motors Mirage: Fake Orders, Undisclosed Production Hurdles, And A Prototype Inferno",
Hindenburg Research is best known for being the firm that called Nikola an "intricate fraud", which led to the departure of the company's founder and eventual probes by several regulatory bodies.
The Lordstown report alleged that the company is an "EV SPAC with no revenue and no sellable product" which has "misled investors on both its demand and production capabilities".
Hindenburg took specific exception with the company's pre-orders, stating that their "conversations with former employees, business partners and an extensive document review show that the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy."
The report pointed out several examples:
- For example, Lordstown recently announced 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.
- Another 1,000-truck, $52.5 million order comes from a 2-person startup that operates out of a Regus virtual office with a mailing address at a UPS Store. We spoke with the owner who acknowledged it won’t actually order any vehicles, instead describing the “pre-order” as a mere marketing relationship.
- Yet another firm that is supposedly set to buy 500 trucks from Lordstown told us: “…The letters of interest are non-binding. It’s not like you’d obligate yourself to a pre-order or that you would contractually bind yourself to buying this truck. That’s not what they are.”
- Lordstown CEO Steve Burns has called these arrangements “very serious orders”. The actual customer agreements, which we present for the first time today, require no deposit and are non-binding. Many of the supposed customers do not operate fleets nor do many have the means to actually make the stated purchases.
- One company rep that committed to buy 40 trucks through Climb2Glory told us: “…I’m not committed to anything, not to buying a single vehicle. I committed to consider buying vehicles. I’d have a lot of questions before I commit to anything.”
- Others had similar remarks. “The commitment of that size (15) is totally impossible,” a representative for the City of Ravenna told us about its pre-order. We document numerous other “customers” that disclaim any intent to actually purchase vehicles.
The report also alleged that "a small consulting group called Climb2Glory was paid to generate pre-orders" for Lordstown. It claimed that "...in January 2021, Lordstown’s first street road test resulted in the vehicle bursting into flames 10 minutes into the test drive."
Hindenburg also released a video called "The Lordstown Motors Mirage" with their report: