Lordstown Motors receives $400 million investment from hedge fund
Detroit — Lordstown Motors Corp. has received a $400 million equity investment from a New Jersey-based hedge fund to help the startup launch and accelerate production of its Endurance electric truck in September.
The Ohio-based startup and YA II PN Ltd., a fund managed by New Jersey-based Yorkville Advisors Global LP, formed an equity purchase agreement on July 23 in which YA agreed to purchase up to $400 million of Lordstown's Class A common stock with the price equaling or exceeding $7.48 per share, according to a filing Monday with the Securities and Exchange Commission.
Lordstown's stock jumped 10% after the announcement, but then declined throughout the trading session and closed down 2.5% at $7.29 per share. The investment comes after months of struggle for the startup, which told the SEC last month it might not survive the next year without additional funding. Lordstown is one of several automakers trying to be first to market with an electric pickup — a difficult and capital-intensive task especially for startups like Lordstown, which took over a massive former General Motors Co. plant in northeast Ohio in late 2019.
"It’s still major uphill battle for Lordstown but this is a step in the right direction from a funding perspective," Wedbush Securities analyst Daniel Ives said in a statement. "Still a long road ahead but gives investors some hope."
The startup recently disclosed that federal prosecutors in Manhattan are investigating its vehicle pre-orders and its merger with blank-check company DiamondPeak Holdings Corp. The SEC is also investigating Lordstown.
Yorkville Advisors President and Partner Mark Angelo didn't reply to an emailed request for comment Monday about the firm's decision to invest in Lordstown.
The investment company has had its own issues with the SEC in the past. In 2012, the SEC filed an action against Yorkville Advisors, Angelo, and its chief financial officer Edward Schinik, charging them "with scheming to overvalue assets under management and exaggerate the reported returns of hedge funds they managed in order to hide losses and increase the fees collected from investors," according to a SEC release from that time.
The case was dismissed in October 2018.
"It takes a big stomach for risk to commit to buy that much stock from a company with a reputation for performance and candor like Lordstown’s," said Erik Gordon, a professor at the University of Michigan's Ross School of Business.
Lordstown's struggle began after the release of an investigative report from a short seller that claimed the automaker misled investors about its pre-orders. Lordstown's founder and CEO, Steve Burns, resigned following a company investigation that found "issues regarding the accuracy of certain statements regarding the company’s pre-orders."
Since then, Lordstown has focused on trying to get its $55,000 electric Endurance truck to launch with a new executive team in place. The company has hired a crisis communications team out of New York to aid in reshaping its troubled narrative.
Newly hired company spokeswoman Kimberly Spell said the new team of executives is "actively exploring other financing options," beyond the YA investment, including private strategic investments.
Lordstown's new CEO, Angela Strand, told reporters during a presentation at the company's Lordstown Week in late June that the automaker was still working on its application for a U.S. Department of Energy Advanced Technology Vehicles Manufacturing Loan Program.
Burns, the former CEO, told investors on the company's first-quarter earnings call in May there was only enough money to make 1,000 trucks this year, even though Lordstown had planned to make 2,200.
In early June, the startup amended its annual regulatory filing with the SEC, noting its doubts about continuing as a "going concern," an accounting term that means the company has the means to meet its financial obligations.
Lordstown is launching its Endurance truck out of the former GM Lordstown Assembly plant near Youngstown. GM closed the plant in March 2019, selling it to Burns and Lordstown Motors later that year. The Detroit automaker has less than a 5% stake in the startup.
The Endurance, which is marketed primarily for the commercial market, will be competing against startup Rivian Automotive Inc., which is also supposed to launch production in September after a delay caused by the global semiconductor shortage. The launch edition of the RiviR1T starts at $73,000.
Next year, Ford Motor Co. plans to deliver its electric F-150 Lightning, which is priced at $39,974 — $15,000 below Lordstown Motors' Endurance truck.
General Motors Co. will start production of its $112,595 GMC Hummer EV pickup later this year. The Detroit automaker is also planning an electrified Chevrolet Silverado and GMC pickup. Their release dates and pricing haven't been revealed.