SPAC Busts: Lordstown, Nikola Are Cautionary Tales of Hyped Electric Vehicle Stocks

Short sellers allege that Lordstown's Endurance pickup is at least three to four years away.

Lordstown Motors’ all-electric pickup truck, “Endurance.” Lordstown Motors

Lordstown Motors just became the latest high-flying electric vehicle startup to fall under regulatory scrutiny as a result of short-sellers taking aim at the overheated EV SPAC sector.

On Wednesday, CEO Steve Burns confirmed that the company had received “requests for information” from the Securities and Exchange Commission regarding accusations by Hindenburg Research, a short seller that accused the electric truck startup of fabricating orders and misleading consumers and investors about production timeline.

Lordstown shares tumbled nearly 10 percent on Thursday morning.

In a report last week, Hindenburg alleged that Lordstown “is an EV SPAC with no revenue and no sellable product.” The General Motors-backed startup, named after the Ohio town where GM famously shuttered a factory in 2019, has claimed that it has more than 100,000 pre-orders for Endurance as proof of strong consumer interest in the model.

“Our extensive research reveals that the company’s orders appear largely fictitious and used as a prop to raise capital and confer legitimacy,” Hindenburg alleged. The short seller cited evidence such as a 14,000-truck deal worth $735 million with a company registered out of a small residential apartment in Texas and a 1,000-truck order by a two-person startup operating in a virtual office.

In addition, Hindenburg estimates that Lordstown is three to four years away from manufacturing the pickup despite its claims that production is on track to start in September.

“We’ve never said we had orders. We don’t have a product yet. By definition we can’t have orders,” Burns said on CNBC Thursday morning.

“The preorders did exactly what they were supposed to do: gauge interest,” he added. “Nobody knew if fleets would buy an electric pickup truck. It was completely unknown science, no data around it…I don’t think anybody thought we had actual orders. That’s just not the nature of this business.”

The chain of events is a too familiar replay of Nikola‘s dramatic fall from grace last year. In September, Hindenburg accused the hydrogen EV startup and its flamboyant founder, Trevor Milton, of lying to investors about the company’s the core technology. The saga ended with Milton leaving Nikola, shutting down his social media accounts, and a $2 billion GM deal falling through.

On Thursday, Nikola shares also took a hit after another key investor, South Korea’s Hanwha Corp, decided to cut its stake in the company by half.

Nikola and Lordstown are among a slew of early-stage EV startups that went public through SPACS, shell companies that go public for the sole purpose of absorbing private firms. Lordstown went public last September through a merger with DiamondPeak Holdings valuing the startup at $1.6 billion. Nikola went public last June in a $3.3 billion merger with VectoIQ Acquisition Corp.

Lordstown shares have halved in the past four weeks from its February high. The company currently boasts a market value of $2.2 billion. Nikola’s market cap stands at $6 billion. Shares have dropped 75 percent from its peak last summer.

Other revenue-less transportation companies that have gone public through SPACs in the past 18 months include Los Angeles-based Fisker, Richard Branson’s Virgin Galactic and Bill Gates-backed battery maker QuantumScape. A number of recently announced SPAC deals are expected to begin trading soon. Notable market debuts to watch include Lucid Motors, flying car startups Joby Aviation and Archer Aviation. SPAC Busts: Lordstown, Nikola Are Cautionary Tales of Hyped Electric Vehicle Stocks