We RIDE at Dawn

I stood amongst the crowd during the Tesla Cybertruck reveal and watched Elon Musk unveil a non-production electric pickup truck with a base range of 250 miles, payload capacity of 3,500 lbs., max towing capacity of 14,000 lbs., and a starting price of $39,900. And no battery specs. And no one batted an eyelash.

This is the intoxicating world of vehicle electrification that we live in these days. It seems to borrow a bit of the irrational exuberance of the early Internet boom in the late Nineties. With the recent run of companies in the EV space going public through SPACs, it was only a matter of time until the short sellers would be out with knives.

In the automotive world, it started famously in 2020 with Hindenburg Research’s report on Nikola — a hydrogen-electric truck maker that suffered the irrational exuberance of a stock that soared higher than FCA’s without selling a semi. Hindenburg’s report uncovered fraud. Nikola’s problems were its own making. Trevor Milton was rightfully ousted. Job done. Of course, the stock crash was the desired effect.

It’s one thing to post your opinion on Reddit or Seeking Alpha, another entirely to play Woodward and Bernstein as short-selling investigative journalists. Hindenburg Research is not the Washington Post; they’re not beholden to any journalistic standards at all. Hindenburg and other investigative crusaders aren’t in the business of letting the target company refute the charges before they go to print. Because then the stock might not crash as hard.

Hindenburg, like Woodward and Bernstein, doesn’t have to name the “disgruntled ex-employees” who provided much of the information. But it all contributes to a tightly spun narrative that no crisis P.R. agency can combat with a “We refute these claims” press release. The bullet points in the report are then picked up by major news organizations with no corroboration. A new public opinion is set by the end of the day and the stock moves with it.

If you haven’t heard, Lordstown Motors got hit with a “Hindenburg flambé” on March 12. Luckily for Hindenburg, it got the report out just in time for Lordstown’s first quarterly report as a publicly traded company on March 17. Lordstown’s shares fell 16.54% that day on the news. Mere hours after the Hindenburg report broke, the vultures were circling with press releases to stir up some class action trouble under the guise of “shareholder rights.”

There are a series of accusations in the report. As outsiders to internal company machinations, it’s not our place to repudiate the unknowable. The following rests on how things work in the automotive industry that wouldn’t be layered into the thought process of the uninformed reading the Hindenburg report.

The report takes Lordstown to task for its widely touted 100,000 preorders. But preorders don’t move the needle in the automotive industry. Perhaps Robin Hood investors don’t know that, but institutional or seasoned investors with any industry savvy should. (Is anyone nitpicking Tesla’s 700,000 preorders for the Cybertruck?)

The whole business of drumming up preorders and marketing them does deserve scrutiny; the uneducated need to be informed. At the same time Lordstown — and Tesla — aren’t hiding the fact that they’re non-binding.

This is what matters to industry folk who want to figure out if a new manufacturer is for real: Where are you building the vehicle and what’s your timeline on hitting your milestones to open the plant? What is your stated production capacity? How do you intend to get the vehicle into the hands of end users? How does the technology work?

On the first point, Lordstown’s factory story is already Heartland lore, but perhaps too fairy tale for some. Quirky entrepreneur/visionary takes over iconic auto plant, promising a manufacturing rebirth in the nation’s Rust Belt. And they’re green jobs. They’re producing the future! It’s partly this narrative that got Mike Pence to show up at the Endurance’s reveal.

There is an almost de-facto phrase being thrown around today in this new EV ecosystem: “We intend to have first vehicles for sale in two years.” If the company is vague on its production facility plans and the prototype is still just renderings, the timeline is taken with a grain of salt. That isn’t the case here.

Lordstown has been upfront about the Endurance’s production timeline. The company released details of the plant’s progress along with steady updates on Job One. Yes, production has been pushed back a few times. A worldwide pandemic might have something to do with that. Still, if Lordstown holds true to its September release, the cumulative delay will be less than a year.

Steve Burns has stated that Lordstown’s production capacity is 20,000 units in its first full year. This is a fraction of the 400,000 Chevy Cruze models that GM produced at that plant per year at its peak. With more demand, the plant would be retooled. “We can't just go from zero to 400,000, but if the demand is there, we want to meet it as best we can,” Burns told Fleet Forward in June 2020.

Easy math tells us those preorders will take years to fulfill. In that time, other OEMs will have electric trucks to sell to the buyers that can’t wait for their preorder chit to come due. It’s widely assumed that the market will look a lot different three years from now on both the manufacturing and fleet sides.

Will Lordstown deliver 20,000 units in its first year, or 7,000? Is it material to the stock valuation? Looking at the competition, Ford will release its eTransit van later this year too. But unlike the newest F-150, the first eTransits off the line will go to select fleet partners in a measured rollout. Achieving production scale, especially for new technology that requires infrastructure and education, is a massive undertaking for Ford and any other EV upstart.

This undertaking includes growing the sales and service network around first buyers. It’s also especially acute for Lordstown because the company won’t be selling through an established dealer network. Lordstown will have to grow the network through its service deal with Camping World and through training staff at larger fleet clients. This isn’t “build it and they will come.” The network must grow with clients’ needs. The challenge should not be underestimated. It sheds light on how production must be balanced with the right sales footprint.  

Hindenburg cites the fact that in a “first road test” an Endurance prototype caught fire in January. The report didn’t mention that the prototype (if it is in fact on its inaugural run) would’ve been one of several Betas, after many tests of the Alpha prototype. Do we know why the fire started? Would it be worth a mention that prototypes from Ford, GM, and Ram malfunction too, and the learnings from that contribute to a better product before they hit the road as production models?

This just makes the Endurance’s participation in the grueling off-road San Felipe 250 race all the more important. The race is April 14-18. If the Endurance’s vaunted electric hub motors don’t hold up, then let’s hold Lordstown to the required scrutiny.

In the good old days of a decade ago, “put up or shut up” time was tied to the product release. It should matter still. For Lordstown, that’s in September. But if the Endurance is delayed a couple of more months, what of it? The real test comes in 2022 when fleet drivers are behind the wheels of these trucks and can offer their real-world opinions.

It’s only been a few days since the Hindenburg report, not enough time to see how it will affect the stock after the initial slam. When will Hindenburg get out of its position? How much will they make?

We’ll never know, but there is some evidence that investors are finding this report flimsy. “We RIDE at Dawn,” responded one user on Reddit, referencing Lordstown’s stock ticker and his or her intent to “buy the dip.” The stock has clawed back some of the initial loss, though the ride will be bumpy for a while.

Let’s not kid ourselves: as an independent auto manufacturer, Lordstown Motors has a mountain to climb. Investors beware. That said, the climate for an upstart’s survival is better than it was just 10 years ago. Electric vehicles “democratize” the ecosystem with fewer parts and tech breakthroughs.

And yes, there is a broader debate to be had over short seller’s roles as market watchdogs and how to balance the need to keep public companies accountable. I’m not an investor, so I’ll wait for more material insights to update my opinions on Lordstown’s potential for success or failure.