Lordstown Motors SEC Filing Not the End, but Startup Could be Bought Out
A financial filing by Lordstown Motors this week citing a lack of cash to start production of its pickup truck may not be the end for the electric startup, but it could make the company a takeover candidate, according to Ohio State University economic development professor Ned Hill.
“It's not a death knell, but if cash isn’t forthcoming, something is going to happen with the company,” Hill said. “In some ways this isn’t terribly surprising. They aren’t going out of business immediately and they have one huge asset [in that] they own the plant.”
In an amendment to its quarterly regulatory filing released Tuesday, Lordstown said the $587 million it had on hand as of March 31 isn’t enough to start commercial production and begin selling the truck, named the Endurance and first unveiled a year ago this month. And the company accumulated a $259.7 million deficit by the close of the first quarter of 2021, reporting no net sales for the quarter, as production is not expected to start until September.
A company spokesperson said Wednesday that Lordstown Motors’ plans to get production started at the end of the summer aren’t changing, though the need for more cash on hand continues.
“We have adequate capital to continue operations, meet supplier obligations and begin limited production, but we previously indicated that we may need to raise additional capital to support our ongoing production plan,” a spokesman said via email. “The update we provided on our most recent earnings call – and in yesterday’s updated SEC filing – indicated that increased R&D spending due to COVID-related supply chain issues and the strategic decision to in-source production of certain parts simply means we now have confirmed that we will need that additional funding in the near term to ramp to commercial production levels.”
The fledgling Youngstown company went public last year. Lordstown Motors stock dropped sharply at the general-concern filing news, down to $10.12 at Wednesday’s opening bell on Wall Street, continuing a more than 30 percent slide that began on the release of the filing Tuesday afternoon.
Hill, also a member of the Ohio Manufacturing Institute at OSU, believes Lordstown’s filing is likely a result of issues company auditors found around the time of a May 24 earnings call, when CEO Steve Burns said more cash on hand to make its initial production forecast of 2,200 trucks per year. Lordstown is spending a lot of money on a third-party engineering staff, Hill said, partly at technology licensor Workhorse in Cincinnati, but also an office recently opened in Michigan. Freight rates and sensor shortages are also impacting cash flow, and Hill also believes the electric truck market is due for a consolidation
Betting on a buyout
“Those companies that have weak finance or weak product, the vultures will start circling pretty quickly, but they [Lordstown Motors] can indeed make it out. If I had to place a bet, the bet I would place is someone else buys them out,” Hill said. “The most likely outcome is a takeover by an existing automotive brand that thinks there’s something distinctive about the technology. Then the question is, do they want the plant?”
What that would mean for the Mahoning Valley is unclear. Hill said economic developers can’t be blamed for promoting the area after General Motors unallocated the Chevy Cruze plant in March 2019, but the “Voltage Valley” hype was premature.
“I've never been a fan of economic development marketing taglines that are in advance of market reality,” he said. “You know, they make lovely bumper stickers.”
Hill said he also doesn’t blame lawmakers like Youngstown-area Rep. Tim Ryan or Gov. Mike DeWine for defending Ohio’s economy, but backlash is possible.
“When government gets involved in betting on technologies and trying to establish industries that aren’t there yet, when they crash and burn, there’s going to be a price to be paid,” Hill said.
Ryan, for his part, said Wednesday he was concerned about the news from the electric truck company but optimistic about the Mahoning Valley's overall manufacturing future.
"Undoubtedly, the news coming out of Lordstown Motors is concerning, and while I will continue to use my position to assist them wherever possible, it is important to remember that they are one piece of a larger movement transforming our region into what has been coined as Voltage Valley," Ryan said. "Between the amazing work being done at BRITE Energy Innovators; the Ultium Cells LLC electric battery plant in Lordstown, which will be up and running early next year and is slated to create 1,100 new high-tech jobs; and the numerous companies in the electric vehicle supply chain that the Youngstown/Warren Regional Chamber is currently aiding – our community is still leading the jobs of the future."
Hill added that while Southeast Michigan is ahead of Ohio in terms of electric vehicle research and development and battery plants, he agreed with Ryan that the Mahoning Valley is making some of the right economic moves, even without Lordstown Motors in the equation.
“With small companies moving into digital production, the 3-D printing emphasis is real,” Hill said. “You've got a company like M7 Technologies kind of at the cutting edge of blending traditional manufacturing with digital manufacturing. So, there’s stuff going on there.
“For most regional economies, there is not one silver bullet, one golden ring on the merry-go-round that turns around the economy,” Hill said.
General Motors and South Korean company LG Chem broke ground on a battery plant last summer, which is very positive for the region, according to Hill
But, Hill said, Lordstown Motors’ recent lack of transparency is also affecting confidence, as is the established competition.
“GM has two trucks well under development and you know they’re real, that’s the Hummer and their version of the Silverado that’s electric,” Hill said. “Ram Truck has announced their electric truck. Ford has the F-150. There’s no way those three companies are going to give up the largest source of profits without a fight.”
Ohio Democrat Sen. Sherrod Brown called the company’s financial news “concerning.”
“I remain committed to helping Lordstown Motors and workers in the Valley,” Brown told ideastream. “We’re continuing to support Lordstown Motors’ efforts to secure an Advanced Technology Vehicles Manufacturing Loan from the Department of Energy and stand ready to offer support in any other ways we can.”
DeWine and Ohio Republican Sen. Rob Portman have not yet returned requests for comment.
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