In Focus: Lordstown Motors, We Wanted It So Bad
In 2003, when the average price of gas was $1.59 per gallon, two guys, Marc and Martin started an electric car company. The following year Marc and Martin connected with an investor named Elon. Two other members, Ian and J.B. would join and make up the founding team of the new electric car company.
Fast forward five years and Elon, the investor, is in full control, and the original two founders Marc and Martin have left the company. The company eventually goes on to become the biggest thing in electric vehicles and the company we all know and love today, Tesla.
Many people aren't aware that Tesla lost its original founders in 2008. Elon Musk has become Tesla, and so today people associate everything Tesla to Elon Musk. But Tesla had its moment where its founders stepped away, and left the investor in charge. Which causes me to wonder, could Lordstown Motors (RIDE) follow in Tesla's footsteps and make what seems like a rough time for the company just a speed bump in its overall history?
Last week Lordstown's CEO Steve Burns and CFO Julio Rodriquez stepped down from the company. The news was the cherry on top of a bad 2021 for Lordstown.
In March Hindenburg Research released a report claiming that Lordstown had misled investors on their production capabilities and the demand for the company's electric truck. According to the Hindenburg report, former employees claim that a Lordstown electric vehicle is several years away from happening. In addition Hindenburg pointed out that the purchase commitments that Lordstown had touted for their Endurance truck were not firm commitments.
After spending months denying the Hindenburg Research report, Lordstown announced in early June that the company has limited capital which would force them to produce half the vehicles originally forecasted by the company . Now add to that the CEO and CFO resigning, and as you can see, it has not been a very good 2021 for Lordstown.
The latest news from Lordstown is that the company has enough cash to last until next May and that production of the Endurance electric truck will start this September. It's decent news to investors, but nothing to write home about after now knowing that those pre-orders that were once celebrated by the company weren't firm commitments to buy. Assuming that the Endurance does go into production in September and it turns out to be everything that Lordstown says it will be, it will still take some time after production for the word to spread, which means the company still needs more cash.
Industry analyst Joseph Spak of RBC Capital Markets believes Lordstown needs $2.25 billion between this year and 2025 to remain solvent. Spak presumes the company will get the cash it needs through either government funding or by issuing additional equity. Both options at this point should be in the electric vehicle startup playbook.
Tesla sold new shares to the market twice in 2020. 17 years after the company started, and with thousands of cars produced and on the road it still raised money through issuing additional equity. And let's not forget the $465 million loaned to Tesla by the Obama administration back in 2009. The amount pales in comparison to the $50 billion the government loaned GM, but at the time Tesla had sold less than 1,000 vehicles. The loan would be a big catalyst for Tesla's future success.
For Lordstown the only way out of the mess is going through the mess, and the person tasked with leading them temporarily out of the mess is Angela Strand. Strand's resume regarding all things electric is impressive. She co-founded Chanje, a joint venture between Smith Electric Vehicles and FDG Electric Vehicles Ltd, she founded another electric
based company In-Charge. She also served as Vice
President at Workhorse for a time.
By Strand's side on the management team there's Lordstown's president Rich Schmidt, who previously served as Tesla's Director of Manufacturing Operations between 2012 and 2017, so he's seen some tough times in the electric vehicle business. There's also John Vo, Lordstown's Vice President of Propulsion. Vo served as the Head of Global Manufacturing for Tesla from 2011 to 2017, he's another Lordstown exec who's seen tough times in the EV industry. Finally, Darren Post Lordstown's V.P of Engineering led five new vehicle programs from concept to production while at GM.
The management appears to be familiar with setbacks as well as success, so this current issue shouldn't have anyone on the management team very rattled. The question that investors have to ask themselves though is can this management team execute if they're able to raise the funds they need?
We Wanted It So Bad
Since hearing its former CEO speak about how EV companies prior to Lordstown were only going after the weekend warrior truck owner and not the everyday workman and woman, I was hooked on Lordstown's vision. After seeing the Cybertruck and Nikola's Badger my question was how do the people I know use those trucks to work in? The contractors, the pool service people, and lawn care people, the diving instructors I know need a truck that's functional, not one that just turns heads, and that's what Lordstown promised, a functional electric work truck.
However, what I and many investors who were caught up in Steve Burns' dream forgot was that starting an automobile company is extremely hard. Elon Musk once wrote there are only two American automakers that haven't gone bankrupt, that's Ford (F) and Tesla. It's an extremely difficult business to maneuver, and yet when investors saw an EV company making themselves public we all bought in hoping that it would be the next Tesla.
Tesla's stock price run from $42.12 per share (adjusted for the five-for-one stock split) in 2019 to over $300 per share in August 2020 when it announced its five-for-one stock split hypnotized us all. All of us who missed out on owning Tesla for less than $20 a share in 2011 were hoping Lordstown could be our cheap buy-in to the growing electric vehicle market. We wanted and expected all of the good of Tesla, but never once stopped to consider the bad that Tesla had to endure to get to where they are today.
Following Tesla since 2010, I've seen how close it's come to not making it, and because it did make it I assumed that the path it laid out would be what future EV companies would follow to make the travel from startup to established auto maker less strenuous. But Lordstown wasn't looking to walk in Tesla's shadow, it was looking to create and sell its own technology to a commercial market, and in doing so it was starting from zero and carving out its own path.
I don't know if I'm still in love with Steve Burns' vision or I'm just a hopeless optimist, but I'm still a believer. Right now Lordstown's management nor its investors can think about winning the game, the focus now should be on staying in the game.
I can't think of any manufacturing company that hasn't gone through a financial crisis at some point in their start. I expect all of the startup electric vehicle companies to go through it at some point or another, minus Rivian, who seems to just keep raising money. In 2019 Rivian raised over $2 billion and in 2020 raised another $2.5 billion. According to Business Insider Lordstown received $675 million upon going public by way of a SPAC acquisition.
Also, as amazing as Ford's electric F150 looks, I'm still not convinced that Ford is all in on electric vehicles, and because of this I think the electric commercial truck / fleet truck market is still up for grabs.
Investing in Lordstown is a big leap of faith. Based on all that has been revealed, I think the company should trade at a lower valuation than it currently trades at right now ($1.88 billion). However, with the right CEO and funding this company could be the next big thing in electric vehicles, and then we'll be paying a lot more than $1.88 billion for the company.
My thoughts still go back to the commercial vehicle / fleet vehicle market. Precedence Research valued the commercial vehicle market at $1.51 trillion in 2019, and it expects the market to grow to $2.55 trillion by 2027. I pass so many fleet vehicles on my daily runs, and I know that one day those trucks are going to be electric, and I wonder who will those electric trucks be made by? The market offers a lot of room for a quality electric truck company to grow, but first, Lordstown has to stay in the game.