Lordstown Motors Cuts Electric Pickup Production Forecast

Lordstown Motors Faces Financial Challenges

The initial optimistic projections surrounding Lordstown Motors and its special-purpose acquisition company (SPAC) have not materialized. The automaker recently released its first-quarter earnings report, revealing a significantly negative financial outlook.

Key concerns highlighted in the report include projected expenses exceeding previous estimates. Furthermore, the company indicated a necessity for additional capital acquisition.

Production forecasts for the Endurance vehicle have also been revised downward. The anticipated output for this year has been reduced from approximately 2,200 units to a mere 1,000.

Impact on Investors

Consequently, Lordstown Motors is projected to utilize more cash than analysts predicted. This places the company further from achieving large-scale production of its inaugural vehicle than originally communicated.

The company’s market valuation has experienced a substantial decline since its public debut through a SPAC merger last year. Following the release of the Q1 2021 report, shares dropped by an additional 7% during after-hours trading.

Investor sentiment was negatively impacted by the report, especially considering the prototype of the Endurance, an all-electric pickup truck, showcased just eleven months prior.

Company Background

Lordstown Motors originated as a spin-off from Workhorse Group, a publicly traded company specializing in battery and electric transportation technologies.

Workhorse Group, established in 1998, has faced financial difficulties periodically throughout its history.

Lordstown Motors had previously announced plans to manufacture 20,000 electric trucks annually, beginning in the latter half of 2021. Production was slated to occur at the former General Motors Assembly Plant in Lordstown, Ohio.

The 6.2 million-square-foot factory was acquired from GM in November.

• Vehicle: Endurance (all-electric pickup truck)
• Location: Lordstown, Ohio (former GM Assembly Plant)
• Parent Company: Workhorse Group

Financial Challenges and Production Adjustments at Lordstown Motors

Lordstown Motors reported a net loss of $125 million for the first quarter, despite generating no revenue. Capital expenditures during this period reached $53 million. However, the company’s substantial spending yielded limited tangible results.

According to a company statement, production of the Endurance electric pickup truck is still planned for this year. Nevertheless, output is now projected to be “at best 50% of our prior expectations.” This, combined with significant cash depletion, proved discouraging to investors.

During a Monday investor call, CEO Burns emphasized “a very robust demand” for their vehicles. He also noted that capital constraints might restrict production volume, leading to ongoing evaluation of capital requirements and potential funding sources, including strategic capital.

Despite a recent SPAC merger intended to bolster its finances, Lordstown anticipates ending 2021 with only $50 million to $75 million in available liquidity. The company began 2021 with $587 million, down from the $630 million held at the close of 2020. Further capital expenditures of $250 million to $275 million are expected, alongside regular operating expenses.

The company is currently engaged in discussions with a financial institution regarding asset-backed financing.

Burns explained that, possessing no debt and substantial assets, coupled with ongoing parts procurement, they are attracting interest from potential financiers. Lordstown is also actively pursuing an Advanced Technology Vehicles Manufacturing (ATVM) loan from the U.S. Department of Energy. While the DOE has completed multiple due diligence reviews, executives refrained from commenting on the timeline, though Burns highlighted the crucial role of an ATVM loan in Tesla’s early development in 2010.

Lordstown’s disappointing performance and declining stock price serve as further evidence that the surge in SPAC mergers to bring EV and automotive companies public may have been premature.

The SPAC merger, announced in September 2020, initially valued Lordstown at $1.6 billion. Shares peaked at $31.80 within the last year, but are currently trading at $8.77.

Burns highlighted the company’s competitive strengths, including its hub motor design and inherent simplicity, which are expected to lower the total cost of ownership. However, Lordstown faces strong competition from emerging EV manufacturers like Rivian and Tesla (with the Cybertruck), as well as established automakers such as Ford, which recently unveiled its electric F-150 model at a price below $40,000.

Burns reaffirmed the company’s competitive standing and its readiness to capitalize on vehicle demand. He also expressed confidence in achieving the targeted 250-mile driving range, although this falls short of the ranges offered by both the Rivian R1T and the Ford F-150 Lightning.

Lordstown provided an update on preorders, following the announcement in January of reaching 100,000 preorders. Approximately 30,000 of these have been converted into “vehicle purchase agreements.” Details regarding customer payments were limited, with Burns stating that “many of those” agreements included a down payment.

Development has also commenced on the company’s second vehicle, an electric van, with a prototype expected later this summer.

Lordstown Motors' Financial Performance

Examining Lordstown’s financial results for the first quarter, it’s clear that the company is currently operating without revenue. It is navigating the challenges of rigorous testing and scaling production for a highly intricate vehicle. This process inherently involves substantial costs.

The following chart illustrates key financial data:

Image Credits: Lordstown

An increase in sales and administrative expenses is less significant when contrasted with the escalating expenditure on research and development. For those invested in Lordstown, anticipating initial production runs and subsequent mass manufacturing, the current financial statement presents a challenging outlook.

During the first quarter of 2021, the company allocated approximately $91 million to research and development. CFO Julio Rodriguez explained that the elevated R&D spending stemmed from increased component costs due to ongoing supply chain disruptions, collocation efforts, and inflated beta testing expenses. These included expedited shipping and a greater reliance on external engineering resources.

Executives also responded to claims made by Hindenburg Research, a short seller, alleging that the automaker had misrepresented the number of vehicle preorders. Hindenburg asserted that these orders were “largely fictitious” and utilized to attract investment and establish credibility.

Lordstown CEO Steve Burns informed investors that a special independent committee had been formed to investigate the allegations outlined in the report. He also noted the company is fully cooperating with a separate investigation being conducted by the U.S. Securities and Exchange Commission.

Following the release of Lordstown’s financial results, the stock performance of both Tesla and Nikola remained relatively stable.

Note: A correction has been made regarding the R&D expenditure, which was $91 million, not $91,000.