When it stopped making its Chevy Cruze model cars in its plant in Lordstown, Ohio, General Motors Co. (GM, Financial) sold its surplus 6.2 million square foot plant to a new venture called Lordstown Motors for a $20 million pittance.
The company, which was established by Workhorse (WKHS) founder Steve Burns, then merged with Diamond Peak Holdings Corp., a special purpose acquisition company. The combined company is now called Lordstown Motors Corp. (RIDE, Financial). DiamondPeak was sponsored by DiamondPeak Sponsor LLC, which is owned by affiliates of David T. Hamamoto and the principals of Silverpeak, an alternative investment management firm.
The company then sold shares to investors, raising $675 million. The transaction includes a $500 million fully committed private investment in public equity, which includes $75 million of in-kind investments by General Motors, in addition to investments from institutional investors like Fidelity Management & Research Company LLC, Wellington Management Company LLP, Federated Hermaes Kaufmann Small Cap Fund and funds and accounts managed by BlackRock, among others, according to the news release. The PIPE investors' cost basis is $10 per share.
Lordstown started trading publicly in October 2020, opening at $18.60 with a market cap of over $3 billion. The stock shot up to more than $30 (market cap of almost $5 billion) and now has come down to less than $10 ($1.5 billion market cap) as the SPAC boom wears off.
Lordstown Motors is an electric vehicle company that plans to produce a pickup truck, branded Endurance, which has a planned price of around $50,000. Currently, the pickup is in development, so the commercialization stage is planned to start around September of 2021.
As of December 2020, the company had $630 million in cash on its balance sheet. The following chart is a diagrammatic depiction of its balance sheet.
When it launches, Lordstown's Endurance will use electric hub motors in each wheel instead of following the traditional EV layout of a large electric motor with a mechanical transmission that sends power to the wheels. This is similar to the layout for a conventional internal combustion engine vehicle. Endurance, however, will have only four moving parts in the drivetrain, i.e., the four wheels.
The appeal of hub motors lies in what they don't have the entire transmission system. The four independent motors only connect to the rest of the vehicle through electrical and data lines. Rotating drive shafts, often exposed to elements, aren't needed, lowering vehicle weight and parts costs. The underside of the vehicle absent of shafts, tailpipes, axles and a differential becomes a nearly flat plane, giving designers more ground clearance and freedom to design enclosures for battery packs.
Lordstown is targeting the commercial pickup fleet market vehicles used by utility companies for service calls, or by small trades and businesses like plumbers, electricians or landscaping companies. Burns says those businesses can benefit from EVs because electricity is generally a cheaper way to power vehicles than gasoline or diesel, adding that the hub motors will make his truck well suited to fleet users. With no engine up front and no transmission sending power down the middle of the pickup to the rear wheels, the Endurance gains dozens of cubic feet of space for batteries, storage and safety crumple zones to absorb crash energy in an accident.
The promise of eliminating dozens of heavy, expensive parts and gaining more space has attracted automakers for more than a century, but none have reached production. In 1900, Ferdinand Porsche showed off the Lohner-Porsche Electromobile in Paris, a hub motor-powered EV reaching up to 23 miles per hour. Throughout the past decade, most automakers have shown concept cars powered by hub motors or have discussed using in-wheel power to add all-wheel drive to front-wheel drive or rear-wheel drive vehicles. Despite the enthusiasm and more than a century of research, hub motors have never made it into production for cars and trucks. Some wheelchairs use such motors, as do electric bicycles, mopeds and golf carts.
The big technical challenge for Lordstown is "un-sprung mass". Each of the four hub motor (the Elaphe L1500 hub motor) developed by a company called Elaphe based in Slovenia weighs about 90 pounds, and that mass rests below the vehicle's springs. This weight called un-sprung mass is harder to isolate from the rest of the vehicle, making it difficult to mitigate noise, harshness and vibration. Adding several hundred of pounds of weight to the vehicles could make the trucks bumpy, which may or may not be acceptable to buyers. Other big challenges include exposure to water, dirt and grit. In traditional cars and most EVs, designers isolate the engine or motor from the abuse of the elements, keeping water and dirt away and lowering vibrations with shock-absorbing engine mounts. This is much more challenging in a hub motor setup, thus reliability and maintenance could be an issue. Hub motors will experience every pothole and puddle, and the only thing protecting them will be the tires. Hub motor-powered EVs will still need traditional friction brakes, and coordinating those with regenerative braking systems in the hub motors is a difficult engineering challenge, especially given the limited real estate inside the wheel. Hub motors, though, give some potential advantages in terms of torque and torque vectoring control.
Lordstown Motors is currently manufacturing pre-production beta versions of its pickup. The product will undergo beta testing with potential customers for the next few months and then the company hopes to go into production later this year. The company says it has enough liquidity to see it through production and till next year.
Lordstown is an interesting but speculative investment. Its pioneering a new type of drive train technology with hub motors. It has a near-production ready plant, which is more than can be said of most EV startups. If successful, it could bring a radical new vehicle technology into the market with huge potential in all sorts of areas and will be a great acquisition target for larger automotive companies.
The company says it has 100,000 preorders for its Endurance pickup. This claim is subject to a SEC inquiry and several investor lawsuits, and might be an exaggeration. Lordstown is also the subject of several short seller attacks and has 21.84 million shares sold short as of March 31, so there is a lot of skepticism around its prospects and credibility. This investment is not for the faint of heart.
On the positive side, Burns, who is the company's CEO, owns about 26.25% of the outstanding shares, so his interests are strongly aligned with seeing this venture succeed. Workhorse Group owns 9.33%. The stock is currently trading below the $10 cost of the original PIPE investors.
Disclosure: The author owns shares of Lordstown Motors Corp.
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