Two years after Lordstown Motors bought the former General Motors plant that built the Chevy Cruze in northeast Ohio, little is clear about the direction the electric truck startup is going in or what its future holds.
What is clear is Lordstown Motors has been shrouded in troubles and mystery — raising questions about GM's loyalty to it. GM owns 7.5 million shares of Lordstown Motors stock and the Detroit automaker is holding on to the small stake, even after at least one other investor started exiting.
GM isn't speaking publicly about its continuing stake in Lordstown Motors but industry analysts and former local union leaders are quick to point to potential benefits, including access to electric vehicle regulatory credits, potential for available factory space and the optics of supporting a community where it closed a plant.
Still, few people know much about what goes on inside the hulking Lordstown Motors. Dave Green, the former UAW Local 1112 president who represented thousands of hourly workers when GM owned the facility, knows former GM employees who now work at the Lordstown Motors plant — a non-union facility.
"If I ask them if they like it there or if they’re paying you good? They’ll say, ‘I don’t want to talk about it,' " Green said. "So it’s real weird. I don’t know if they signed a non-disclosure or what?”
Then, there are the considerable troubles Lordstown Motors has faced since early this year, including accusations of fraud and questionable pre-orders for its all-electric Endurance pickup, a pickup prototype erupting in flames in metro Detroit, a Securities and Exchange Commission probe and the company's warning to Wall Street that it might run out of money. All of it has driven down the stock price and was enough to warrant an investigation by the Department of Justice.
"It’s kind of odd that, with all the troubles that Lordstown Motors has had, GM has not cut their financial stake," Tim O'Hara, another former Local UAW 1112 president,said. "For those of us who worked for GM for decades, if GM makes a bad investment, they cut their ties. So it fits our scenario that we think GM will come back in to that plant either as a partner with Lordstown Motors or if Lordstown Motors fails, what will GM do with that plant? Buy it back?”
Looking for partners
On Wednesday, Lordstown Motors reported a second-quarter net loss of $108 million, saying it has $367 million in cash as of June 30.
It confirmed the plant is production-ready and it would begin limited Endurance production in September, delivering the EV to selected, early customers in the first quarter of 2022. Commercial deliveries would start early in the second quarter, "with the ramp steepening the second half of next year, " said Lordstown Motors’ Executive Chairwoman Angela Strand in a statement.
Also, the startup is evaluating several potential partners and that "serious discussions" are underway with some, possibly to even lease space in the plant, Strand said during an analyst call.
“The size and scope of our facility is such that we could easily accommodate additional manufacturing partners while still affording us the ability to build a successful Endurance program" and use that program for additional future models, Strand said.
Finally, Lordstown Motors has an agreement to sell GM the electric vehicle regulatory credits it earns by building the Endurance during the first three years of production. GM has the option to purchase the credits at 75% of the fair market value.
GM had a similar reason to back another start-up electric truck maker, Nikola Corp., last year.
Those credits are like gold. They help position GM so it can sell its highly profitable gas-consuming pickups and SUVs, yet meet stringent federal environmental regulations while GM works to bring its promised 30 EVs to market by 2025.
Bankruptcy scenario
The startup's story begin in 2019. That spring, GM permanently shuttered its Lordstown facility despite former President Donald Trump criticizing CEO Mary Barra on Twitter for doing so. Lordstown Motors bought the facility — along with the equipment in the plant — from GM later that year.
GM now owns 7.5 million shares of Class A common stock in Lordstown Motors. It represents an equity value of $75 million in the company, but only $25 million of that was GM's cash. The balance is the selling price of the plant, equipment, land and the value of the in-kind contributions GM made to help Lordstown Motors complete the purchase.
Lordstown Motors has not indicated any plans to file for bankruptcy protection, but lawyer Doug Bernstein, a partner at law firm Plunkett Cooney in Bloomfield Hills, said it is conceivable that, if Lordstown Motors filed for Chapter 11 bankruptcy protection, GM could bid to buy the plant likely at a low price. In Chapter 11, a company restructures and can sell off parts.
"But the question is how much demand is there for (the plant)?" Bernstein said. "The place is gigantic."
In the event of a Chapter 7 filing, which is a total liquidation of a company, a trustee is appointed to manage the liquidation and there is an order to pay creditors. The last in line are the equity holders, Bernstein said.
"So the 5% stake GM has, under Chapter 7, would be worth nothing," Bernstein said.
GM is already retooling its existing plants in North America to build some of those future EVs, likely eliminating a desire to add Lordstown Motors' huge 6.2-million-square-foot facility that once had the capacity to build 600,000 vehicles a year to its portfolio.
GM also has its own plans for at least three electric pickups, so partnering with Lordstown Motors on a fourth electric pickup doesn't make sense, said a person familiar with GM's plans who asked to not be named because he is not authorized to share that with the media.
But GM is steadfast that it has no near-term plan to part with its stake in the startup. Industry experts say GM's investment gives Lordstown Motors credibility, which in turn has helped Lordstown Motors get some early investments and keep its stock from crumbling.
Commitment to the area
GM spokesman Jim Cain declined to provide a reason for GM continuing to hold its stock in Lordstown Motors.
But if GM sells its stake in Lordstown Motors, that could signal to the market that GM lacks confidence in Lordstown Motors' survival and cause the stock to crash, said Morningstar's Auto Analyst David Whiston.
GM may sell at some point, Whiston speculated, but Lordstown Motors would have to be in far worse shape than it is now. Lordstown Motors stock trades for $5.58 to just under $6 a share. At its peak, in February, it was $30.75 a share.
"I think (GM) holds it to show they are committed to the Lordstown area and to support the area despite the Cruze plant sale," Whiston said. "Also, if Lordstown fails, the amount of capital GM has to write off won’t ravage GM’s results, so holding it is better than the negative media attacks GM will get if it sells."
But on Monday, another big investor, Workhorse Group, reported in a regulatory filing that it sold 11.9 million shares of Class A common stock in Lordstown Motors, almost three-quarters of its holding in the company. Workhorse recorded a loss of nearly $52.1 million, it said. Workhorse develops electric-powered trucks and Lordstown Motors had a technology licensing agreement with Workhorse, which had owned 10% of the startup.
Workhorse sold the stock from July 1 through Aug. 6, but it was unclear from the filing if it was sold in the open market or as a block to a single investor. Workhorse spokesman Tom Colton declined to publicly discuss the specifics of the transaction.
'Jobs in Ohio'
GM's Cain said supporting the local Lordstown area's economy is one of GM's commitments.
"We became an investor because we were trying to support their investment in the plant and it’s still our goal to be supportive of jobs of Ohio," Cain said.
Cain noted GM has invested billions of dollars in its other facilities across the state including building a joint-venture battery plant with LG Energy Solution adjacent to Lordstown Motors called Ultium LLC. That plant is due to open in the first quarter of 2022.
In October 2020, Lordstown Motors went public through a reverse merger with DiamondPeak Holdings Corp., a special purpose acquisition company.
The Lordstown Motors' prospectus noted then that GM received its equity largely for the sale of the plant and the equipment. Lordstown Motors, DiamondPeak and investors mapped out the plan to retool the plant and use Workhorse technology to develop the Endurance. GM had no involvement in the product design or the operation of the plant.
But GM's financial support did help the startup go public and Lordstown Motors told investors they had a leg-up on competitors because they acquired a near production-ready plant, saving them money on start-up costs.
'Out of control'
Investor Maximillian Lawrence, 46, believed that GM's investment added value to Lordstown Motors.
Lawrence, who teaches at a public high school in Philadelphia, was drawn to the new EV industry budding in his home state of Ohio and backed by an industry titan such as GM.
"GM is no dummy, they’ve been around forever. With GM it’s not a huge amount of money, but I am assuming GM did its due diligence," Lawrence told the Free Press. "I grew up in Toledo, so I wanted GM to discover the industrial capacity again, but in a new way because everyone is looking for jobs."
In October of last year, Lawrence bought 500 shares of Lordstown Motors stock at about $11 each. Soon, the stock rocketed up to $28 and he sold the lions share of his investment.
He unloaded the rest in March of this year after the report from short-seller Hindenburg Research came out. It described Lordstown Motor's preorders as a "mirage," saying the company has "no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities."
“I immediately sold the rest," Lawrence said, saying he broke even on what was left of his investment. "I am not mad at Lordstown Motors. I don’t think they tried to shell anyone. I think their publicity arm was more spun up than their production arm and it grew out of control."
Lordstown's troubles
Lordstown Motors former founder and CEO Steve Burns told the Free Press last year that the company would employ 4,000 to 5,000 people in the plant "in the near future" based on demand for electric vehicles.
It was music to the ears of those in the Mahoning Valley where the plant sits.
“The majority of us were born and raised in the Mahoning Valley, so we want that plant to be productive, we want jobs for the valley," former Local UAW 1112 President O'Hara said. "If Lordstown Motors would fail, we’d be going through two plant closings in three years, so it would be devastating.”
But the plant is nowhere near that employment target. As of Wednesday, a Lordstown Motors spokeswoman Kimberly Spell said 593 people worked in the plant. She declined to comment on GM's investment in Lordstown Motors saying the startup does not discuss its investors.
The company has been plagued with problems, starting in January. A group of engineers testing an Endurance pickup prototype near Lordstown Motors' Research and Development Center in Farmington Hills made it about a mile from the center before it erupted into flames, burning down to its tires.
From there, things got progressively worse:
—An ongoing investigation by the Securities and Exchange Commission, which Lordstown Motors said it is cooperating with, is looking at the Hindenburg Report's claims of vehicle preorders being largely fictitious to "raise capital and confer legitimacy." The Hindenburg Research report prompted the company to form a special committee to investigate the report's accusations and other issues. This committee, along with legal expenses associated with the SEC, cost the company $9 million in the second quarter.
—In June, the special committee's investigation found most of the accusations by Hindenburg to be "false and misleading," but it did identify issues around the accuracy of some Lordstown Motors statements about its preorders.
—The special committee said the prototype fire in Michigan was an "isolated event" caused by "nonconforming parts on a battery pack that had been manually reworked for assembly on the prototype."
—In June, the startup ousted Burns and CFO Julio Rodriguez following a first-quarter loss of $125 million. It said in a government filing that it did not have enough funds to start commercial production of the Endurance and it had a "going concern," a legal term that means it might not make it.
—But later that month, new President Rich Schmidt said Lordstown Motors has about $400 million in liquidity and is ready to start building the Endurance in September. Two days after that, the automaker reversed itself, saying it doesn't have any firm orders for its vehicles.
There is a positive, Schmidt said during Wednesday's earnings call: The beta models performed well in crash testing. He expects it to receive the top safety ranking — a five-star crash test rating — from the National Highway Traffic Safety Administration's New Car Assessment Program.
Also good, last month the hedge fund YA II PN Ltd agreed to to buy up to $400 million worth of Lordstown Motors' shares over three years. Strand said Lordstown Motors is committed to securing more financing to ensure the company survives.
No silver bullet
The hedge fund investment offers hope to northeast Ohio residents, who want Lordstown Motors to be successful and bring jobs.
But some still have doubts. Green and O'Hara said the area has had a history of companies failing.
"There’s always some type of silver bullet and some company is going to come in and save the valley and I just tell folks, 'That’s just not going to happen,' " Green said. "They have to diversify and adapt to the new economy and not rely on manufacturing."
Yet for all that, Green hangs onto the hope that GM will once again occupy the factory he spent so many years in before transferring to GM's Bedford Casting plant in Indiana in 2019 after GM idled Lordstown Assembly.
"With GM building the new battery factory right next door to Lordstown, it makes me question, 'Where are they going to use those batteries?' I can’t imagine them shipping those all over the country, each one weighs about 3,500-lbs.," Green said. "I think GM will take over Lordstown at some point. Lordstown will either go bankrupt and GM will get the building back or GM will go in there and build them with Lordstown."
That remains to be determined, but rest assured, the community and the world will keep watching for Lordstown Motors's fate and GM's part in it.
“It’s always a topic at the union hall — the closing of the plant never goes away," O'Hara said. "It’s always in the news, pretty much weekly. I get reporters from all over the country asking about it. I have even talked to a couple of international people. It’s still being followed.”
