Lordstown Motors Corp. (RIDE) stock prices were up to USD$10.02 as of market close on April 16th, 2021, having seen an uptrend of 2.35%. Subsequent current market fluctuation saw the stock prices fall to USD$9.10 after an 8.98% dip.
Hindenburg Targets RIDE
The short-selling research company, Hindenburg Research, recently released a scathing report on Lordstown Motors. Hindenburg alleged that the numbers reported for pre-orders of Lordstown’s flagship electric vehicle, Endurance, were heavily artificially inflated in a malfeasant bid to increase investor confidence. The CEO of RIDE defended the pre-order numbers by claiming they were not seen as firm commitments, but non-binding letters of intent.
Fraudulent Pre-Orders?
However, upon further digging, Hindenburg disclosed that 14,000 of the 100,000 pre-ordered vehicles were ordered by E Squared Energy. The USD$735 million potential transaction came from a company that has only two employees and is run out of a small apartment in Texas.
Further Evidence of Malfeasance
Furthermore, most of the pre-orders come from consulting firms who the RIDE CEO admitted to paying USD$30 per non-binding order. Despite the CEO shying away from how significant the pre-orders were, Hindenburg notes that constant use of the word “pre-order” was misleading for investors, who assumed something more than a non-committal interest.
Test Drive Disaster
Adding literal fuel to the fire, a prototype of Endurance burst into flames shortly after commencing its initial test drive in January of 2020. This revelation did not come from the company itself, but a police report that Hindenburg dug up. The incident saw the Endurance prototype out for its first test drive when, after 10 minutes, the driver noticed an irregularity in the way the car was handling. After pulling over, a fire was noticed under the vehicle, which soon completely engulfed the car in flames.
Shady Conduct from Executives
News of the incident did not enter the public domain until February 10th, 2021. Particularly damning was that members of Lordstown management who were privy to this incident sold USD$8.8 million worth of shares before the news reached the public.
RIDE’s Response
RIDE accused of Hindenburg of reporting half truths and lies. In regard to the vehicle that caught fire, a spokesperson for RIDE reported that a human error in the assembly of the vehicle is what caused the incident. While that is a devastating concession, the spokesperson said that RIDE had entered into a fully automated phase and so the chances of replication of that error or a recurrence of the incident are entirely off the table.
RIDE’s Future Outlook
With six months left until their anticipated production date, this report could prove devastating for RIDE’s future prospects. In light of the report, RIDE was hit with a multitude of lawsuits alleging investor fraud. With the SEC investigating Hindenburg’s claims, the company’s future is hanging in the balance. Investors who haven’t jumped ship are hoping for RIDE to come out of these allegations and investigations with a clean slate. Whether this is the case is something time will tell.
