In 2020 and 2021, we had several months when enthusiasm for new EV manufacturers was crossed with the resurgence of blank-check companies. Also called special purpose acquisition companies, or SPACs, these listed shell companies promised quick access to capital and a path to the public markets, and a wide array of tech and tech-ish companies took them up on the offer.
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In 2020 and 2021, several electric vehicle companies took the SPAC route to raise quick cash and go public, especially because investors were pretty OK with investing in such experimental transactions. Full of enthusiasm, these companies’ investor presentations showed a clear path to production and stellar profits.
It’s obvious in retrospect, but the results often proved to be messy.
U.S.-based EV company Lordstown Motors is one such example. Today, the company filed for bankruptcy protection and sued its former partner Foxconn at the same time. As TechCrunch reported earlier this morning:
Lordstown Motors has made good on its threat to sue Foxconn, the Taiwanese company best known for manufacturing Apple’s iPhones. The EV company took legal action against Foxconn Tuesday, and simultaneously filed for bankruptcy and put itself up for sale. […]
In its complaint, Lordstown says Foxconn misled the EV maker about collaborating on vehicle development plans and was “not the partner that it promised to be.” The complaint accuses Foxconn of pretending to support the Endurance pickup truck and future joint product development in order to secure ownership over Lordstown’s most valuable asset, the Ohio manufacturing plant, and to poach some of Lordstown’s skilled manufacturing and operational employees.
It would be easy to dismiss Lordstown’s failure as the result of a dispute between the two companies. But that would be wrong. In reality, the Lordstown saga is a blend of pure SPAC nasty. Let’s take into account a few pertinent facts to form our opinions.
Lordstown’s SPAC journey
TechCrunch’s reporting on Lordstown has been voluminous and broad, so if you want the true blow-by-blow, please start here. For everyone else content with a summary, allow me:
- The Lordstown SPAC deal, as pitched to investors, estimated that it would generate revenue of $118 million in 2021, $1.69 billion in 2022, $3.48 billion in 2023, and $5.78 billion in 2024.
- The presentation also forecast that the company would generate positive EBITDA in 2022 (page 24).
- Lordstown also said that there were no “additional capital requirements expected between [its] PIPE and going to market, [or] achieving positive cash flow.”
Investors gobbled that story up faster than a star-nosed mole could. The company’s stock then shot up to a multiple of its pre-combination SPAC price, buoyed by statements like the following when the company closed its merger with SPAC DiamondPeak Holdings in late 2020:
We have a near production-ready plant and approximately $675 million in proceeds from this transaction, which is more than enough funding to get us through initial production.
Lordstown had lots of fresh capital, a seemingly solid plan and a public stock that was doing well. What could go wrong?
Apparently a lot, as described by this trio of TechCrunch headlines from the following months:
- Lordstown Motors accused of faking EV truck pre-orders by short-seller firm Hindenburg Research (March 2021)
- Lordstown Motors slashes production forecast for its electric pickup (May 2021)
- Troubled EV company Lordstown Motors gets $400M lifeline in stock-sale agreement (July 2021)
In late 2021, Lordstown said it planned to sell its plant to Foxconn in a multistep deal.
But even after going through all of that, it appears it didn’t even have its production in place:
- Through Q3 2022, Lordstown had generated no revenue, as it had only started up production of its EV pickup in that period.
- In Q4 2022, Lordstown announced further agreements with Foxconn, what it described as an investment “of up to $170 million, subject to certain conditions [with the] initial $52 million funded.” The EV company closed last year with revenue of $194,000.
- In Q1 2023, Lordstown generated revenue of $189,000. It detailed a host of issues with Foxconn that, in its view, showed it was being wronged. Those matters have apparently come to a head, leading the company to sue its old partner and descend into bankruptcy.
So much for having enough capital and being “near production ready” back in 2020.
It’s even funnier that Lordstown’s SPAC deck estimated that the company would generate revenue of $5.17 billion in 2022 and 2023. Instead, the company generated revenue of $383,000 in calendar 2022 and Q1 2023 combined. That’s quite a miss.
I know that regulation lags the market, but holy hell, what was all this? It’s not a popular position to take, but surely this is a place where we need more active and muscular regulation. And it should not be post-fact, but pre-listing.
I don’t know if the folks working on the myriad SPAC deals that incinerated value are sleeping well. I would not be able to. A lot of regular people got hosed by SPACs that talked a big game but fell apart once they had to live up to their own hype. That’s just not acceptable.
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