With questions surrounding the EV startup Lordstown Motors, some of the pieces to its beginnings are starting to surface. This is due to the US Securities and Exchange Commission making public information as it looks into whether claims it has made were misleading investors. The Lordstown factory-in fact the origin of its name comes from an ex-GM assembly plant where the startup plans to manufacture its EV pickups located in Lordstown, Ohio.
GM gave Lordstown Motors $40 million to underwrite the purchase of its plant
There have always been questions surrounding its acquisition of the assembly plant. GM gave Lordstown $40 million to underwrite the purchase of the plant. But why? GM wanted to divest itself of the plant but it was a viable facility. Why was it so eager to tie in with Lordstown in this way? Now those puzzle pieces are coming together.
GM tied up most of Lordstown Motors’ future federal emissions credits. It’s similar to Tesla’s arrangement selling off these smog credits to manufacturers that can’t meet minimum corporate average emissions numbers. An SEC filing reveals that GM retained the option to buy up to three years worth of emissions credit allowances. This was first called out by Sean O’Kane on Twitter. But that’s not all.
Besides tying up the future credits GM would receive a discount of 25% on those credits based on open market trading prices. These credits allow any manufacturer-especially those building pickups and large SUVs, to produce these vehicles. The quantities result in emission numbers far above what the government allows. So these manufacturers buy the credits baking the cost into the price of the vehicles.
The optics looked to be an effort to appease then-President Trump
The optics originally looked to be an effort to appease then-President Trump. He had been critical of GM’s manufacturing in Mexico and elsewhere outside of the US. This looked like an attempt by GM to get some form of manufacturing for the plant. This took some of the negative publicity Trump’s tweets were generating away. Other than this there didn’t look to be any motivation for GM to help the EV startup in the way it was. Now we know why it was so accommodating.
It is looking more like Lordstown won’t be able to meet its 2021 deadline to produce EV pickups. But were it to do so it would begin an exclusive source of credits for GM starting this year. The investment would also allow GM to make a small profit off of the sale of Lordstown trucks. And it also gave them exposure to Lordstown technology it could utilize for its own EV products. It was an all-around win for the General.
Now a monkey wrench has been thrown into GM’s Lordstown plan
All of this has now had a monkey wrench thrown into GM’s plan. That’s because short-seller Hindenburg Research has accused Lordstown of faking orders, misleading investors, and overpromising production capability and timetables. The last time Hindenburg did this was with EV manufacturer Nikola. Things have gotten bad for that EV startup. It looks like we are seeing the same picture now being played out with Lordstown.
This is not an accusation of any wrongdoing on Lordstown’s part. But charges like the ones Hindenburg is making are defensible in court through huge lawsuits if the accusations turn out to be false. It could cost Hindenburg billions of dollars in compensation for damages to Lordstown. So these are heavy accusations that Hindenburg has backed up with numerous examples of wrongdoing. Just like it did with Nikola. Which also had agreements with and investments from GM. Based on what the SEC finds we’ll know soon enough if these are grounds for a lawsuit or reason to stop doing business.