Lordstown Motors CEO And CFO Resign

Lordstown Motors announced today several changes to its executive management team – officially, because the “company begins to transition from the R&D and early production phase to the commercial production phase of its business.”

We guess that it’s rather because the situation is quite challenging and requires fast and possibly radical moves to secure financing for operation beyond 2021.

Anyway, Lordstown Motors’ two top executives - CEO Steve Burns and CFO Julio Rodriguez – “resign” from the company.

They will be replaced temporarily by Angela Strand, Lead Independent Director (appointed Executive Chairwoman) and Becky Roof (appointed Interim CFO), until a permanent CEO and CFO will be appointed. It’s another sign that it’s not a planned move and the company did not have a new CEO and CFO ready for the transition.

“To that end, Lordstown Motors Lead Independent Director Angela Strand has been appointed Executive Chairwoman of the Company, and will oversee the organization’s transition until a permanent CEO is identified, and Becky Roof, will serve as Interim Chief Financial Officer. Steve Burns has resigned as Chief Executive Officer and from the Company’s Board of Directors, and Chief Financial Officer Julio Rodriguez has also resigned. All changes are effective immediately and the Company has engaged an executive search firm to identify a permanent CEO and CFO.”

Lordstown Motors listed also a few more positions in its augmented executive team:

• Rich Schmidt, President of Lordstown Motors, will continue to oversee all day-to-day operations, including manufacturing and engineering. Mr. Schmidt was promoted to President in November having previously served as Lordstown’s Chief Production Officer. He has over 30 years of automotive industry expertise, including experiences at Toyota and Nissan, Hyundai, Volkswagen, J.D. Power, and Tesla Motors.
• Jane Ritson-Parsons, formerly Lordstown Motors Interim Chief Brand Officer, has been appointed Chief Operating Officer. Jane is a highly experienced senior global executive with demonstrated leadership and revenue building success with a successful track record most recently at Hasbro Inc as their Group Executive, Global Marketing.
• Carter Driscoll, formerly Lordstown Motors Head of Investor Relations, has been promoted to Vice President, Corporate Development, Capital Markets and Investor Relations.
• Tom Canepa, General Counsel, Shane Brown, Chief Production Officer, Darren Post, Vice President of Engineering, John Vo, Vice President of Propulsion, will all remain in their current roles to continue to guide the Company’s progress.

On the positive side, the company still believes that it will start production of Lordstown Endurance electric pickups in September 2021.

However, the customer deliveries seem to be quietly delayed again, as the new expected timeline is Q1 2022. Previously, we thought that sales would also start in September/end of 2021. At this point, it basically has no chance to be the first modern, series-produced electric pickup on the market.

A separate press release was focused on the results of the investigation conducted by the Special Committee of its Board of Directors into the report published by Hindenburg Research on March 12, 2021 (the “Hindenburg Report”).

Lordstown Motors engaged Sullivan & Cromwell LLP to double-check all the allegations and according to the results, in most cases, everything is under control, but there were issues with pre-orders.

“The Special Committee’s investigation concluded that the Hindenburg Report is, in significant respects, false and misleading. In particular, its challenges to the viability of Lordstown Motors’ technology and timeline to start of production are not accurate. The investigation did, however, identify issues regarding the accuracy of certain statements regarding the Company’s pre-orders. A summary of the Special Committee’s findings is presented below.”

Regarding the production target, the company believes that it is on track to meet the projected date of September 2021. Hindenburg Report stated that it’s unrealistic.

“The Special Committee concluded that while various factors could lead to delays in the start of production, the projected September 2021 start of production remains achievable with the expectation of delivery to customers in the first quarter of 2022.”

The company says that it continues to use steel frames and there is no change in that matter that could affect the market launch.

Lordstown Motors explains also that “initial battery pack assembly equipment has been received and is being installed, with remaining equipment due to arrive in advance of the projected start of production date.”

In terms of hub motors – the automated production line will be ready in several months.

“Lordstown Motors currently expects to produce hub motors in part using manual processes while the automated hub motor production line is installed over the next few months. It expects this process to provide sufficient hub motor production capacity to support expected production volumes in 2021 and 2022.”

The company also dismisses doubts about the viability of hub motors:

“The Endurance was engineered to address the unsprung vehicle mass attributable to in-wheel motors, including through tuning of the suspension, reinforcing the vehicle structure, and utilizing a heavier truck chassis.”

The prototype fire about which we covered in detail in January (see images here) is considered “an isolated event rather than one reflecting a systemic problem.”

“Lordstown Motors conducted a technical investigation of the incident that identified the root cause of the fire to be non-conforming parts on a battery pack that had been manually reworked for assembly on the prototype. During a test drive, the driver accelerated beyond the expected test parameters for that prototype. As a result of the rapid acceleration, the faulty connection point resulting from the manually reworked assembly experienced an overload of electric current which caused the battery to ignite.”

In terms of pre-orders – there were issues, but Lordstown Motors do not find anything significant. Those were non-binding reservations after all, mostly without even deposits. In other words, the value of those numbers is pretty low.

“In most instances, Lordstown Motors’ pre-orders did not require a reservation or similar payment, though pre-orders submitted through a website portal required a refundable $100 payment. Lordstown Motors entered into an arrangement to pay one entity commissions for procuring pre-orders. That entity procured approximately 1,000 pre-orders and also assisted Lordstown Motors into entering into an important commercial relationship with a leading fleet management company.”

Lordstown Motors noted one entity that provided a “large,” but undisclosed number of pre-orders, despite lack of resources:

“Lordstown Motors made periodic disclosures regarding pre-orders which were, in certain respects, inaccurate.

• Lordstown Motors has stated on several occasions that its pre-orders were from, or “primarily” from commercial fleets. In fact, many pre-orders were obtained from (i) fleet management companies or other end users that indicated interest in purchasing Endurance trucks, similar to commercial fleets, and (ii) so-called “influencers” or other potential strategic partners that committed to attempt to secure pre-orders from other entities, but did not intend to purchase Endurance trucks directly.
• One entity that provided a large number of pre-orders does not appear to have the resources to complete large purchases of trucks. Other entities provided commitments that appear too vague or infirm to be appropriately included in the total number of pre-orders disclosed.”

And here is a part about some other matters:

“The Special Committee also reviewed certain other matters raised in the Hindenburg Report and made the following observations. First, although not in a position to assess ongoing litigation with Karma Motors, the Special Committee notes that Lordstown Motors has denied the allegations against it and is contesting both liability and damages.

Second, as described in various Form 4 filings in the months following the DiamondPeak transaction, certain Lordstown Motors directors and executives have sold or transferred shares in the Company. Each of those transactions were made for reasons unrelated to the performance of the company or viability of the Endurance, and each such director and executive retained substantial Lordstown Motors equity holdings in the form of shares and options following the sales and transfers described in the Company’s public filings.”

As we can see Lordstown Motors basically says that most of the things are ok. Only time will tell how the project will progresses. The key element is probably financing, and then the hard work begins – to produce a reliable electric vehicle and compete on the market.