A new report by short seller Hindenburg Research took aim at electric-truck startup Lordstown Motors Corp. RIDE -16.54% , saying the company misled investors about the strength of its truck preorders and the progress it is making toward putting its first model into production.
Lordstown Motors Chief Executive Steve Burns, responding in an interview, said the report contained half-truths and lies, and that the short seller has a motivation to hurt the stock before the company reports its first quarterly update as a publicly traded entity next week.
The startup is named for the Ohio town where the company purchased a dormant former General Motors Co. assembly plant in 2019. As a result of that deal, GM acquired a small stake in Lordstown Motors. A GM spokesman declined to comment immediately.
The Wall Street Journal hasn’t been able to verify independently the accusations in Hindenburg’s report.
Shares of the Ohio-based company closed down 16.5% following the report’s release Friday morning. Hindenburg—which last year targeted another electric-truck startup, Nikola Corp. —disclosed in its latest report that it holds a short position in Lordstown Motors, meaning it stands to profit from declines in the company’s share price.
Hindenburg’s report described Lordstown Motors’ order book as a “mirage” and, among other accusations, said it paid an outside consulting group to generate preorders for its truck in advance of its deal to go public in 2020. The report cited documents and conversations that the firm said it had with former employees and business partners.
Mr. Burns confirmed the company paid consultants to generate preorders that were understood to be nonbinding as a way to assess market demand, but denied it misrepresented its preorder book.
“We are not stating these are orders and have never stated that,” he said.
Lordstown Motors is among several clean-transportation startups that have become public over the past year amid growing investor interest in electric vehicles. The company listed last year through a deal with special-purpose acquisition company, or SPAC, DiamondPeak Holdings Corp. that valued the company at $1.6 billion.
The company, which had a market value of $2.9 billion as of Thursday, has yet to sell a vehicle. It is targeting the commercial-truck market, vehicles typically used by fleet operators in business or government settings.
Lordstown Motors and Mr. Burns have regularly pointed to its preorder book to underscore the strength of demand for its forthcoming commercial pickup truck, the Endurance, and promote its business to investors. “Most of them are signed by the CEOs of these large firms,” Mr. Burns said of the preorders in a CNBC interview in November. “They’re very serious orders.”
In a regulatory disclosure in December, Lordstown Motors said it didn’t have any current customers or pending orders, and there was no assurance the nonbinding preorders will be converted to sales. In a January news release, Lordstown Motors said the more than 100,000 reservations for its Endurance truck were nonbinding.
Hindenburg said those orders weren’t only nonbinding but also “largely fictitious” and didn’t represent “genuine demand.” The New York-based research firm, led by Nathan Anderson, said it talked to several businesses and municipalities that the company counts as having placed preorders.
Some preorders for 1,000 or more trucks came from businesses that didn’t operate commercial fleets, Hindenburg said. Others with preorders told the firm that they didn’t have the means or intention to purchase the number of trucks tied to the reservation, the report said.
Responding to these claims, Mr. Burns said the company is confident there is demand for its trucks and the preorders were a way to gauge interest as it preps the factory to build for certain volumes. He also said some of these businesses aren’t fleet operators but intermediaries.
“If a guy signed a piece of paper that said ‘I think I can move x-thousand of them,’ we believe them. But it’s not in blood. It’s a nonbinding letter of intent,” he said.
The report also said Lordstown Motors was behind schedule for starting production at the Ohio factory in September and was confronting undisclosed production delays. It said former employees told Hindenburg that the startup was still building battery packs by hand, despite plans to mass-manufacture them in-house.
Mr. Burns said Lordstown Motors is still on track to start building market-ready trucks in September and much of the equipment necessary to manufacture the battery packs is installed.
Hindenburg also said a prototype of Lordstown Motors’ new truck caught on fire 10 minutes into its first on-road test in January. The firm cited a police report it obtained through public records requests. Mr. Burns confirmed the fire but said it was determined to be caused by human error during assembly.
Lordstown Motors initially outlined plans to begin production by late 2020. The company later pushed back the timing to January 2021, citing disruption from the Covid-19 pandemic, and recently pushed back the start of production to September.
In January, Lordstown Motors said it had begun building 57 prototype trucks for testing. It also has said it is working on an electric van, set to go into production in the second half of 2022.
Lordstown Motors is scheduled to report its fourth-quarter financial results and host its first investor conference call on Wednesday.
Hindenburg’s Mr. Anderson and a reporter for The Wall Street Journal are among the more than 20 defendants in a lawsuit brought by private-equity firm Catalyst Capital Group and Callidus Capital Corp. alleging a short-selling conspiracy related to a 2017 article about Catalyst. A Journal representative has said the news organization is confident in the fairness and accuracy of its reporting. Mr. Anderson said: “We stand by our research on the subjects 100%.”
Hindenburg last fall issued a report on Nikola, accusing the Phoenix-based maker of electric and hydrogen-powered trucks of being an “intricate fraud” and making misleading statements. Following the report, Nikola’s stock cratered, the company received subpoenas from the Securities and Exchange Commission and Justice Department, and its founder Trevor Milton exited the company.
Nikola has called the report’s claims false and misleading. In a recent regulatory filing, it said that an internal review of Hindenburg’s allegations found that nine statements by the company or Mr. Milton were wholly or partially inaccurate but disputed the report’s characterization of the company as a fraud.
Lordstown Motors acquired the plant in November 2019 from GM for $20 million, according to a regulatory filing. GM later forgave the purchase obligation, other loans and interest in exchange for 7.5 million shares of Lordstown Motors, or a 4.5% stake, the filing said.
Write to Ben Foldy at [email protected] and Mike Colias at [email protected]
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