Investigation of Hindenburg, a short seller, points to electric vehicle startup Lordstown Motors; Shares down 16%

A new report from short-seller Hindenburg Research pointed to electric truck startup Lordstown Motors Corp.

RIDE -15.36%

, saying the company misled investors about the strength of its truck pre-orders and the progress it is making in putting its first model into production.

Lordstown Motors Chief Executive Steve Burns responded in an interview, saying the report contained half-truths and lies, and that the short seller has a motivation to hurt the stock before the company reports its first quarterly update as a publicly traded entity next week.

The startup is named after the Ohio city where the company purchased a former idle General Motors. Co.

assembly plant in 2019. As a result of that agreement, GM acquired a small stake in Lordstown Motors. A GM spokesman declined to comment immediately.

The Wall Street Journal has not been able to independently verify the allegations in the Hindenburg report.

Shares of the Ohio-based company fell 16% after the report was released on Friday morning. Hindenburg, which last year targeted another electric truck startup, Nikola Corp.

—You disclosed in your last report that you have a short position in Lordstown Motors, which means that you can benefit from declines in the company’s share price.

Hindenburg’s report described Lordstown Motors’ order book as a “mirage” and, among other allegations, said it paid an outside consulting group to generate pre-orders for its truck before its deal was made public in 2020. The report cited documents and conversations the firm said it had with former employees and business partners.

Mr. Burns confirmed that the company paid consultants to generate pre-orders that were understood as non-binding as a way to assess market demand, but denied misrepresenting its pre-order book.

“We are not saying these are orders and we have never said so,” he said.

Lordstown Motors is among several clean transportation startups that went public over the past year amid growing investor interest in electric vehicles. The company was listed last year through a deal with special purpose acquisition company, or SPAC, DiamondPeak Holdings Corp. that valued the company at $ 1.6 billion.

The company, which had a market value of $ 2.9 billion as of Thursday, has yet to sell a vehicle. It targets the commercial truck market, vehicles that are typically used by fleet operators in commercial or government settings.

Lordstown Motors and Mr. Burns have regularly flagged their pre-order book to underscore the strength of demand for their next commercial truck, the Endurance, and to promote their business to investors. “Most of them are signed by the CEOs of these big companies,” Burns said of the pre-orders in a CNBC interview in November. “They are very serious orders.”

In a regulatory disclosure in December, Lordstown Motors said it had no current customers or backorders, and there were no guarantees that non-binding pre-orders would turn into sales. In a January press release, Lordstown Motors said the more than 100,000 reservations for its Endurance truck were not binding.

Hindenburg said those requests were not only non-binding, but also “largely fictitious” and did not represent a “genuine claim.” The New York-based research firm, led by Nathan Anderson, said it spoke with several companies and municipalities that the company believes have pre-ordered.

Some pre-orders for 1,000 trucks or more came from companies that did not operate commercial fleets, Hindenburg said. Others with pre-orders told the company that they had neither the means nor the intention to purchase the number of trucks tied to the reserve, according to the report.

In response to these claims, Burns said the company is confident that there is demand for its trucks and that pre-orders are a way to gauge interest as it prepares the factory to build certain volumes. He also said that some of these companies are not fleet operators but intermediaries.

“If a guy signed a piece of paper that said ‘I think I can move a thousand of them,’ we believe them. But it is not in blood. It is a non-binding letter of intent, ”he said.

The report also said that Lordstown Motors was behind schedule in starting production at the Ohio factory in September and was facing undisclosed production delays. He said former employees told Hindenburg that the startup was still building battery packs by hand, despite plans to mass-manufacture them in-house.

Mr. Burns said that Lordstown Motors is still on track to begin building market-ready trucks in September and that much of the equipment needed to make the battery packs is in place.

Hindenburg also said a prototype of the new Lordstown Motors truck caught fire 10 minutes after its first road test in January. The firm cited a police report it obtained through public records requests. Burns confirmed the fire, but said it was determined to be caused by human error during assembly.

Lordstown Motors initially outlined plans to start production in late 2020. The company subsequently pushed back the schedule to January 2021, citing the interruption of the Covid-19 pandemic, and recently delayed the start of production to September.

In January, Lordstown Motors said it had started building 57 truck prototypes for testing. It has also said that it is working on an electric van, which will go into production in the second half of 2022.

Lordstown Motors is scheduled to report its fourth quarter financial results and hold its first investor conference call on Wednesday.

Anderson of Hindenburg and a reporter for The Wall Street Journal are among more than 20 defendants in a lawsuit brought by private equity firm Catalyst Capital Group and Callidus Capital Corp., alleging a short sale conspiracy related to a 2017 article on Catalyst. A representative for the Journal has said the news organization is confident in the fairness and accuracy of its reporting. Anderson said, “We stand behind our research on the issues 100%.”

Investors and big automakers are pouring money into electric vehicle startups in search of the next Tesla, hoping to profit. One company is attracting more scrutiny than most. WSJ explains. Illustration: Jacob Reynolds / WSJ

Hindenburg issued a report last fall on Nikola, accusing the Phoenix-based hydrogen and electric truck maker of being an “intricate fraud” and making misleading statements. Following the report, Nikola’s stock plunged, the company received subpoenas from the Securities and Exchange Commission and the Department of Justice, and founder Trevor Milton left the company.

Nikola has called the report’s claims false and misleading. In a recent regulatory filing, he said an internal review of Hindenburg’s allegations found that nine statements by the company or Mr. Milton were wholly or partially inaccurate, but challenged the characterization of the company’s report as fraud.

Lordstown Motors acquired the plant in November 2019 from GM for $ 20 million, according to a regulatory filing. GM subsequently forgave the purchase obligation, other loans and interest in exchange for 7.5 million shares of Lordstown Motors, or a 4.5% stake, according to the document.

Write to Ben Foldy at [email protected] and Mike Colias at [email protected]

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