SPAC: EV Startup Lordstown Motors Is In Trouble
You may have heard of this story before – an electric car startup launches, then makes very big promises to investors as it sought to go public through a SPAC merger. But, it later turned out that those promises were a sham.
- In the above short story, that was Nikola, the troubled electric car startup that was the first company to test the waters of the current SPAC boom. Now, that story is likely repeating itself with another company – Lordstown Motors (NASDAQ: RIDE).
- In a recent filing to the SEC, Lordstown warned that it doesn’t have sufficient capital to fund commercial-scale production of its electric truck. This is despite raising $675mn from its SPAC merger last year.
- With its admission of lacking capital, Lordstown is definitely in financial trouble if further investment isn’t secured. The question is will investors will be willing to give it loads of cash once again?
- Lordstown’s recent admission is just much in contrast with its sentiment at the time of its SPAC merger. Then, in its investor presentation, the company said that it didn’t expect to raise further capital (after the $675mn from its merger) to achieve positive cash flow. Now, just barely a year later, it’s hurting for cash.
- Comparing Lordstown’s recent admission to that preceding its SPAC merger, it’s apparent that the company misled investors. The misling highlights one of the core problems with SPAC mergers, where companies are allowed to make bogus projections that wouldn’t hold water in traditional IPOs.
- Now, if Lordstown doesn’t secure more funding, its investors will likely be burned as in the case of Nikola. Already, shares of the EV maker have tanked on the public markets by more than 16% in one day. Lawsuits from shareholders have even started getting prepared.
- The case of bogus projections by companies is rife in SPAC mergers. It’s as seen in Nikola and now in Lordstown. It’s particular for electric car startups, some of whom are grifting on the outsized interest by investors in the space.
- In its filing, Lordstown said that its management team is evaluating possible funding alternatives, equity or debt otherwise. But, there’s no guarantee that would happen, and even if it does, it will hardly come with favorable terms for the company and its shareholders.