Lordstown Motors, a start-up that promotes itself as set to transform the pick-up truck market has announced it has run out of money less than a year after going public through a blank-cheque merger with a SPAC. The $1.6 billion deal was completed just 9 months ago but the company now says it doesn’t have enough money to start commercial production of its vehicles. It called into question its ability to continue as a going concern without further investment.
The announcement is being viewed in some quarters as an early warning sign that the rush of high-value SPAC deals that have seen often loss-making start-ups go public at huge valuations over the past couple of years is a bubble.
SPACs, special purpose acquisition vehicles, are shell companies established with the specific purpose of merging with a company in a way that allows it to list as a public company without going through the traditional IPO process. Investors in the SPAC, whose shares trade on the stock exchange, acquire a stake in the company it merges with.
However, they often don’t know what company the SPAC will merge with when investing. The record number of SPAC listings over the past year has led to fears the trend is a sign stock markets have entered a period of high risk speculative investment. Critics will point to Lordstown’s woes as a clear sign many SPAC deals have not only hugely overvalued the companies they have merged with but that many of the companies have no real underlying business.
The dotcom boom, then crash, was founded on a similar pattern of ‘theoretical’ businesses being valued at hundreds of billions of dollars despite generating little or no actual revenues.
Ohio-based Lordstown is attempting to rebuild an old General Motors plant in the state as the production facility for its electric pick-up truck designs. When it merged with the SPAC DiamondPeak Holdings Corp. last October it said it had pre-orders for its prototype Endurance model worth $1.4 billion. The start-up also said it had production facilities able to manufacture “in excess of 600,000 electric vehicles annually”.
Production of Endurance was planned to begin this year with a target for 2200 vehicles built before the end of December. Last month that target was cut to 1000 vehicles after the company told investors it faced “some challenges with funding”.
Yesterday’s filing was a notable escalation of that warning with Lordstown telling investors its viability as a going concern was reliant on the development of new vehicle models, regulatory approval and commercial production. It has run out of the funds required to move forward in any of those directions, raising “substantial doubt regarding our ability to continue as a going concern”.
The company’s share price, it is listed on the Nasdaq exchange, slumped by over 16% yesterday. Its management said they were “evaluating various funding alternatives”, which include a new share issue. Presumably there has to be serious doubt as to whether the start-up would now find enough investors to fill a share issue and the valuation downgrade the company and existing investors would have to accept to attract fresh funds.
Lordstown is far from the only electric vehicles start-up to go public via a SPAC merger in the past year. Baris Guzel of BMW I Ventures, a VC investor funded by German automotive giants BMW, says at least 22 EV companies have listed via SPAC mergers in the past year.
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