Lordstown Motors Receives $400M Investment to Avoid Bankruptcy

Lordstown Motors Secures $400 Million Investment

Just five weeks after issuing a warning regarding potential funding shortages that could impede the launch of its electric pickup truck, Lordstown Motors has reached an agreement with a hedge fund managed by Yorkville Advisors. This agreement entails the purchase of $400 million in shares over a three-year timeframe, as detailed in a regulatory filing released on Monday.

Company Facing Significant Challenges

Recent internal difficulties at Lordstown Motors, including the resignations of both its Chief Executive Officer and Chief Technology Officer, have placed the company's future in jeopardy. This new investment is intended to provide a crucial financial boost, enabling the continuation of operations and the production of its inaugural electric vehicle.

Shareholder approval will allow YA II PN, the hedge fund, to acquire 35.1 million shares, representing approximately 19.9% of the company’s currently outstanding shares.

A Vital Financial Lifeline

Lordstown has encountered considerable financial strain in recent months, and this capital infusion represents a vital lifeline. The hedge fund’s investment, priced at $7.48 per share, also presents a potential for financial gain should the stock value increase.

Origins and Connections

Lordstown Motors originated as a spin-off from Workhorse Group, another publicly traded company focused on battery-electric transportation technologies, previously led by Steve Burns. Workhorse currently maintains a 10% ownership stake in Lordstown Motors.

Early Promise and Subsequent Difficulties

Founded in 2019, the Ohio-based automaker quickly secured a merger agreement with DiamondPeak Holdings Corp., a special purpose acquisition company, establishing a market valuation of $1.6 billion within a year. Initial plans called for the commencement of Endurance pickup truck production in the latter half of 2021 at the former GM Assembly Plant located in Lordstown, Ohio.

However, these plans encountered setbacks, and a series of errors, coupled with allegations of fraudulent activity, further complicated the company’s situation.

Short Seller Scrutiny

In March 2021, Hindenburg Research, a firm known for its short-selling activities and a previous report that triggered an SEC investigation into Nikola Motor, announced a short position in Lordstown Motors. Hindenburg asserted that its position was based on a company lacking revenue and a marketable product, and that it had allegedly misled investors regarding both demand and production capabilities.

Disputed Pre-Order Numbers

Hindenburg challenged Lordstown’s claim of securing 100,000 pre-orders for its electric pickup truck, a figure publicized in January. The short seller contended that its research indicated these orders were largely unsubstantiated and utilized to attract capital and establish credibility.

Production Volume Revisions

Two months later, Lordstown’s first-quarter earnings report revealed that projected production volumes for the Endurance would likely be halved, decreasing from approximately 2,200 vehicles to just 1,000, due to insufficient funding.

Retracted Statements and Investigations

Company executives further eroded investor confidence by initially attempting to reassure stakeholders following the CEO and CTO’s resignations, asserting the existence of binding orders that would support limited production through May 2022. These statements were subsequently withdrawn within days.

Currently, both the Department of Justice and the Securities and Exchange Commission are conducting separate investigations into the company’s activities.