Lordstown Motors Corp. (Nasdaq: RIDE), (“Lordstown Motors” or the
“Company”), a leader in electric light duty trucks focused on the
commercial fleet market, has received the below statement regarding
the results of the investigation conducted by the Special Committee
of its Board of Directors into the report published by Hindenburg
Research on March 12, 2021 (the “Hindenburg Report”).
_____________________________________________________________________________
The Special Committee of the Board of
Directors of Lordstown Motors Corp.
Background
The Hindenburg Report stated, among other things, that Lordstown
Motors had made various misstatements about demand for its
Endurance pick-up truck, the viability of the technology utilized
in the Endurance, and its ability to start production of the
Endurance in September 2021. In response, the Lordstown Motors
Board of Directors established a Special Committee of independent
directors to investigate the allegations made in the Hindenburg
Report. The members of the Special Committee are David T. Hamamoto,
Jane Reiss, and Dale Spencer. The Special Committee engaged
Sullivan & Cromwell LLP, a leading global law firm, to conduct
the investigation. Sullivan & Cromwell was assisted by
technical experts from a leading automotive consulting firm.
The Special Committee’s investigation concluded that the
Hindenburg Report is, in significant respects, false and
misleading. In particular, its challenges to the viability of
Lordstown Motors’ technology and timeline to start of production
are not accurate. The investigation did, however, identify issues
regarding the accuracy of certain statements regarding the
Company’s pre-orders. A summary of the Special Committee’s findings
is presented below.
Findings
1. September 2021 Start of Production
Target
The Hindenburg Report stated that
Lordstown Motors’ plan to start production in September 2021 is
unrealistic based on Hindenburg’s allegations relating to recent
design changes (including to the composition of frames), a failure
to complete necessary testing, a lack of battery pack manufacturing
capability, and a lack of hub motor manufacturing capability. The
Special Committee concluded that while various factors could lead
to delays in the start of production, the projected September 2021
start of production remains achievable with the expectation of
delivery to customers in the first quarter of 2022.
The Hindenburg Report cites a
purported statement from an anonymous former Lordstown Motors’
employee that Lordstown Motors switched from plastic frames to
aluminum frames earlier this year. That is false. While Lordstown
Motors made certain changes to the materials to be used for the
doors, hoods, and fenders, there has been no change to its plan to
manufacture the vehicle frame from steel.
Lordstown Motors has commenced and
plans to complete required regulatory, durability, and Federal
Motor Vehicle Safety Standards (“FMVSS”) testing during 2021. While
certain testing must be completed before Lordstown Motors can
deliver the Endurance to customers, none of the testing cited in
the Hindenburg Report must be complete before the start of
production. Lordstown Motors has begun testing consistent on a
timeline that anticipates delivery to customers in the first
quarter of 2022, taking into account the potential adjusted
production volumes discussed on the Company’s May 24, 2021 first
quarter earnings conference call.
Lordstown Motors has sourced battery
cells from suppliers, and initial battery pack assembly equipment
has been received and is being installed, with remaining equipment
due to arrive in advance of the projected start of production
date.
Lordstown Motors currently expects to
produce hub motors in part using manual processes while the
automated hub motor production line is installed over the next few
months. It expects this process to provide sufficient hub motor
production capacity to support expected production volumes in 2021
and 2022.
2. Viability Of Hub Motor Technology
The Hindenburg Report questioned the
viability of the hub motor technology used in the Endurance,
stating that the hub motors are licensed from a Slovenian company,
Elaphe, that hub motors present durability issues because of
“unsprung weight,” and that hub motors have not previously been
commercialized at scale in the light vehicle market. The Special
Committee concluded that while hub motors have not previously been
used at scale in commercially-produced passenger vehicles, the hub
motor technology licensed from Elaphe is viable. The Endurance was
engineered to address the unsprung vehicle mass attributable to
in-wheel motors, including through tuning of the suspension,
reinforcing the vehicle structure, and utilizing a heavier truck
chassis. These measures are expected to alleviate any ride or
durability issues that might otherwise arise.
3. January 13, 2021 Truck Fire
The Hindenburg Report described a
January 13, 2021 incident in which a prototype of the Endurance
caught fire during a test drive. The Special Committee concluded
that the incident was an isolated event rather than one reflecting
a systemic problem. Lordstown Motors conducted a technical
investigation of the incident that identified the root cause of the
fire to be non-conforming parts on a battery pack that had been
manually reworked for assembly on the prototype. During a test
drive, the driver accelerated beyond the expected test parameters
for that prototype. As a result of the rapid acceleration, the
faulty connection point resulting from the manually reworked
assembly experienced an overload of electric current which caused
the battery to ignite. Lordstown Motors reported the incident to
the relevant regulator and has taken steps to address the isolated
issues that contributed to this incident. The production process
now in place and the automation of battery pack assembly are
intended to ensure that this type of issue does not recur.
4. Pre-Orders
The Hindenburg Report raised various
questions regarding the Company’s practices and disclosures
regarding “pre-orders.” Among other things, the Hindenburg Report
stated that Lordstown Motors’ pre-orders (i) are non-binding
letters of intent, (ii) require no reservation payment and in
some instances were procured through the payment of sales
commissions, (iii) are from customers that generally do not operate
fleets, and (iv) include pre-orders from customers that do not
have the means to make the purchases indicated.
Lordstown Motors has repeatedly
disclosed that its pre-orders are non-binding, and it has
highlighted the risk that pre-orders may not be converted to actual
orders.
In most instances, Lordstown Motors’
pre-orders did not require a reservation or similar payment, though
pre-orders submitted through a website portal required a refundable
$100 payment. Lordstown Motors entered into an arrangement to pay
one entity commissions for procuring pre-orders. That entity
procured approximately 1,000 pre-orders and also assisted Lordstown
Motors into entering into an important commercial relationship with
a leading fleet management company.
Lordstown Motors has obtained tens of
thousands of pre-orders from fleets, fleet management companies, or
other end users. If converted to orders, this demand will comprise
substantially all of the Company’s expected production volume
through 2022.
Lordstown Motors made periodic
disclosures regarding pre-orders which were, in certain respects,
inaccurate.
- 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.
- 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.
5. Other Matters
The Special Committee also reviewed
certain other matters raised in the Hindenburg Report and made the
following observations. First, although not in a position to assess
ongoing litigation with Karma Motors, the Special Committee notes
that Lordstown Motors has denied the allegations against it and is
contesting both liability and damages. Second, as described in
various Form 4 filings in the months following the DiamondPeak
transaction, certain Lordstown Motors directors and executives have
sold or transferred shares in the Company. Each of those
transactions were made for reasons unrelated to the performance of
the company or viability of the Endurance, and each such director
and executive retained substantial Lordstown Motors equity holdings
in the form of shares and options following the sales and transfers
described in the Company’s public filings.
About Lordstown Motors Corp.
Lordstown Motors Corp. is an Ohio-based original equipment
manufacturer of light duty fleet vehicles, with the purpose of
transforming Ohio's Mahoning Valley and Lordstown, Ohio, into the
epicenter of electric-vehicle manufacturing. The company owns the
640 acre, 6.2 million square foot Lordstown Assembly Plant where it
plans to build the Lordstown Endurance, believed to be the world's
first full-size, all-electric pickup truck designed to serve the
commercial fleet market. For additional information visit
www.lordstownmotors.com.
Forward Looking Statements
This press release includes forward-looking statements. These
statements are made under the “safe harbor” provisions of the U.S.
Private Securities Litigation Reform Act of 1995. These statements
may be identified by words such as “feel,” “believes,” expects,”
“estimates,” “projects,” “intends,” “should,” “is to be,” or the
negative of such terms, or other comparable terminology.
Forward-looking statements are statements that are not historical
facts. Such forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties, which could
cause actual results to differ materially from the forward-looking
statements contained herein due to many factors, including, but not
limited to: our limited operating history and our significant
projected funding needs; risks associated with the conversion and
retooling of our facility and ramp up of production; our inability
to obtain binding purchase orders from customers and potential
customers’ inability to integrate our electric vehicles into their
existing fleets; our inability to retain key personnel and to hire
additional personnel; competition in the electric pickup truck
market; our inability to develop a sales distribution network; and
the ability to protect our intellectual property rights. Any
forward-looking statements speak only as of the date on which they
are made, and Lordstown Motors Corp. undertakes no obligation to
update any forward-looking statement to reflect events or
circumstances after the date of this press release.
Contacts:
InvestorsCarter DriscolllordstownIR@icrinc.com
MediaRyan Hallettlordstownmotors@ottoandfriends.com
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