Lordstown Motors Corp.’s CEO, Steve Burns, and CFO, Julio Rodriguez, have resigned. Angela Strand has been appointed executive chairwoman and will oversee the company until a permanent CEO is identified. Becky Roof will serve as interim CFO. Lordstown is developing the Endurance electric pickup truck.
The moves come at the same time as a special committee of independent directors concluded that a report published by Hindenburg Research criticizing Lordstown Motors on March 12, 2021, “is, in significant respects, false and misleading.”
The internal investigation “did, however, identify issues regarding accuracy of certain statements regarding” pre-orders.
In a press release, Lordstown said the management changes come as it “begins to transition from the R&D and early production phase to the commercial production phase of its business.”
Strand is presently the managing director of Strand Strategy, an advisory firm specializing in technology, business strategy, and organization development across multiple sectors working with corporate board executives, investors, suppliers, and policy makers. She is considered a thought leader and expert in the commercial electric vehicle sector, with a decade of real-world executive and advisory experience working with fleets, fleet management companies, OEMs, utilities, financing and infrastructure solutions providers to successfully launch and deploy electric trucks and end-to-end infrastructure solutions.
Ms. Roof will serve as Interim CFO, effective immediately. She is a certified public accountant and seasoned financial executive who has served as a consultant to publicly traded companies and in an interim CFO capacity at numerous companies including Eastman Kodak, Hudson’s Bay Co., Saks Fifth Avenue, and Aceto Corp.
“Lordstown Motors has achieved significant milestones on the path to developing the first and best full-size all-electric pickup truck, the Lordstown Endurance,” said David Hamamoto in a prepared statement. “We thank Steve Burns for his passion and commitment to the company. As we transition to the commercial stage of our business—with planned commencement of limited production in late-September—we have to put in place a seasoned management team with deep experience leading and operating publicly listed OEM companies. We have complete confidence in Angela and Becky, and our expanded leadership team, to effectively guide the company during this interim period.”
Key management at Lordstown Motors
- Rich Schmidt, president, will continue to oversee all day-to-day operations, including manufacturing and engineering
- Jane Ritson-Parsons, formerly interim chief brand officer, has been appointed COO
- Carter Driscoll, formerly head of investor relations, has been promoted to VP corporate development, capital markets, and investor relations
- Tom Canepa, general counsel
- Shane Brown, chief production officer
- Darren Post, VP of engineering
- John Vo, VP of propulsion
Lordstown response to Hindenburg Report
- 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. - 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. - 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. - 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. - 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.
Source: Lordstown Motors
