Lordstown Motors hit by massive fraud accusations

Tuesday, 16 March 2021

Lordstown Motors was a bit of an American hero. It offered an impressive electric truck designed and built in the US of A and, if you were to believe what its CEO, Steve Burns, said, demand was high. However, a new report from Hindenburg Research has found that not everything is quite as it seems.

Before we get into the details, it pays to mention that Hindenburg is a ‘short selling’ firm, which means it looks for certain stocks that are selling high but are at risk of crashing.

Short-selling simply involves betting that the price of a financial product – usually shares in a company – is going to go down. This is done by 'borrowing' shares to sell from a stockbroker, and agreeing to return the shares at a later date, by which time the short-seller hopes their market price will have fallen, so they can buy them more cheaply.

Lordstown’s first truck, the Endurance. It was meant to be the first electric truck to market, at least in the US, but now might not be built at all.

Anyway, back to the case at hand. According to the Hindenburg Research paper, Lordstown Motors has misled a lot of people with regard to exactly how many pre-orders it was fielding, the development of its Endurance truck, and who was ordering its product.

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President Donald Trump talks to reporters after viewing the Endurance all-electric pickup truck, made in Lordstown, Ohio, at the Whitehouse.

CEO Steve Burns is at the centre of it all.

Hindenburg spoke with former employees of Lordstown and Burns’ previous company, Workhorse Group. Workhorse is a manufacturing company based in Ohio, of which Burns resigned from in Feburary 2019.

According to those ex-employees, Burns was forced out for “… wasting R&D money and missing deadlines.” According to the board of Workhorse, which wanted the company to focus on building trucks, Burns was distracted with Horsefly, its drone programme, and other pet projects.

Four months after leaving Workhorse, Burns founded Lordstown and entered into an agreement with Workhorse to purchase the intellectual property for the Endurance truck.

A former senior technology employee of Workhorse told Hindenburg that “virtually zero intellectual property was actually shared with Lordstown”, aside from designs and a book of roughly 6,000 pre-orders, which Burns has described as “sales”.

Lordstown went on to buy an ex-General Motors factory with a US$40 million loan from GM in the city that gave the company its name, also in Ohio. Burns and Lordstown comitted to re-opening the factory and re-hiring 4200 workers.

The move was great for publicity – then-president Trump used it as an example of bringing jobs back to America and Vice President Pence was sent to the unveiling of the Endurance last year. Trump asked Burns to come to the White House in September 2020 to promote the truck.

The Endurance has been out and about testing, with some journalists even allowed to be taken for a drive in one.

However, behind the scenes, things weren’t quite as peachy.

Burns was telling media that 100,000 Endurances had been pre-sold across America to various fleets. Hindenburg says these are “mirage” orders.

The research firm was given a copy of the pre-order agreement, and it shows that no reservation payment was required, nor was the customer obligated to finish the purchase.

Lots of Lordstown’s “pre-orders” are non-committal agreements, mainly by shady fleet companies that had no intention to actually buy the vehicles.

One big “pre-order” was from a company called E Squared Energy Advisors. Sound fishy? It gets better. Over Christmas 2020, Lordstown said the company had ordered around 14,000 vehicles. Hindenburg found out that claim is almost certainly untrue, as E Squared isn't a registered corporation. It has two employees with an address that is the company CEO’s apartment in Frisco, Texas.

Hindenburg contacted the CEO to ask if it had a fleet, and was told:

“We don’t operate a fleet but we provide the fleets. It’s kind of a hybrid of a lease, but it’s not a lease. That’s the closest thing to describe it as that people are familiar with…”

So E Squared provides a fleet without having a fleet while offering a hybrid of a lease that isn't a lease. Confused? But wait, there’s more.

Another company, Innervations LLC, placed an order for a thousand trucks in April 2020, worth a total of US$52.5 million. Innervations was founded four months before the order and operates out of a virtual office. Its physical address is a UPS store in Hernando, Florida.

Hindenburg said Innervations also doesn’t have a fleet of its own but offers “fleet services”. It spoke with co-founder, David Hein, who then said his company has no intentions to actually purchase the Lordstown product.

“What we do is we host and support events with companies, and then we invite Lordstown Motors to the event to show the product. We just direct the company to Lordstown directly. When they tell us they’re interested in purchasing trucks that’s what we do. We don’t get involved in the actual ordering.”

Clean Fuels Ohio is another company that Lordstown promoted as a buyer. Executive directer, Sam Spofforth, told Hindenburg that Clean Fuels never agreed to buy the vehicles. They were only supposed to encourage purchases and educate fleet buyers on the benefits of electric trucks.

Hindenburg also discovered that, from as early as 2016, Burns had been paying consulting firms US$30 per non-committal “order” to help Lordstown raise money and look credible. These went up to $50 per order until Lordstown went public in late 2020.

There's even more in the full report, with things like:

Customers not being aware that they had entered any kind of agreement with Lordstown.
A pattern of customers that happened to be small companies local to the area with no known history of ever operating fleets.
Companies placing orders as a favour to Burns when he was CEO of Workhorse. These trucks were supposed to be delivered in late 2018 and are yet to be seen.
Production promises that are never met and are always changing.
The first Endurance road test bursting into flames 10 minutes into the drive.
The company’s hub motors (a core part of the Endurance) being licensed from a small company in Slovenia.
Industry experts saying the hub technology could be problematic.
A former employee saying that massive changes have been made to prototypes, but no government testing has been done for required certification, like cold weather, durability and safety testing.
Production is actually three to four years down the road.
The ex-GM plant doesn’t have equipment for building batteries in-house, like Burns claimed. While it arrives and gets put into a production environment, the batteries are being assembled by hand.

If this all seems like too much, remember that Hindenburg Research uncovered the web of lies formed by Nikola’s founder, Trevor Milton, who resigned shortly after that report went live.