On Monday, Lordstown Motors Corp (NASDAQ: RIDE) CEO Steve Burns and CFO Julio Rodriguez unexpectedly stepped down after a board committee found that the company's documents inaccurately disclosed preorders on its battery-powered trucks.
The outsing is just the latest setback for the EV truck designer turned SPAC star. Last Tuesday, the board amended the company's annual report to include a notice of "growing concern," indicating that Lordstown might not have enough capital to continue operations past 2021. At that same time, the board also disclosed that weaknesses in the company's financial reporting scheme that could have resulted in other distortions within its documents.
The company's lead independent director Angela Strand will take the helm as interim CEO. "We remain committed to delivering on our production and commercialization objectives, holding ourselves to the highest standards of operation and performance, creating value for shareholders," she said.
The board began its audit into the inner workings at Lordstown after the Hindenburg Group, a notable short seller, levied accusations against the company earlier this year, claiming that it had overstated its volume of preorders and that its tech was nowhere near capable of delivering on what the company had promised.
The board corroborated the first part of The Hindenburg Group's accusations. Among other things, the board committee found that many preorders were from third party's with no intention of buying the trucks themselves. Further orders were based on commitments that were "too vague or infirm to be appropriately included in the number of preorders disclosed."
However, the committee stressed that Hinderberg's allegations concerning the company's tech were "false and misleading." Meanwhile, in March, the company disclosed that SEC is looking into these and other claims levied by Hindenburg. It seems the SEC inquiry remains ongoing.
The prompt exit of Lordstown's top brass recalls a very similar situation that unfolded at Nikola (NASDAQ: NKLA), another equally ambitious EV startup, back in September. After Hindenburg levied similar accusations against that company, its founder and CEO, Trevor Milton, was forced to step down. Later the company disclosed that leadership had indeed misled investors in the manner that Hindenburg described.
The recent events at Lordstown could ignite yet more controversy around SPAC listings, which have allowed 30 similarly billed EV startups to go public last year without any established product lines or sales. SPACs or Special Purpose Acquisition Company's are private companies that merge with sales-poor startups, thereby allowing the latter to go public.
Last year the meteoric rise of Tesla (NASDAQ: TSLA) and NIO (NYSE: NIO) had investors looking to companies, like Lordstown. as fresh footholds into the burgeoning EV space.
Since going public, many of these EV startups have missed production targets, raised prices, or revised their business models, usually before a single car or product has left the assembly line. Lordstown, for example, raised $675 million through its SPAC merger at a $1.6 billion valuation. All this before it had even managed to complete a single sale.
As for Lordstown's future, Jon Lopez, who covers the company for the Vertical Group, told the Wall Street Journal that these recent developments cast doubt on the company's ability to establish itself in an already overcrowded electric vehicle market. "The probability of that was low to begin with and has decreased," he said.
At the time of this writing, Lordstown Motor shares are off by 54.02% year to date and is down 8.14% this week.