Thread by @jpr007

Lordstown Motors Issues Cash Warning

- here's what it means for GM and its stake freep.com/story/money/ca…

General Motors is mum on a high-profile, albeit small investment in startup electric truck maker Lordstown Motors as the startup teeters on the edge of extinction

In a government filing Tuesday, Lordstown Motors said it doesn't have enough money to start commercial production and it has doubts whether it can continue as a going concern through the end of the year

"Going concern" is a legal phrase companies use to warn investors they might not make it

GM owns 7.5 million shares of Class A common stock in exchange for equity value of $75 million in Lordstown Motors

It's a small stake of less than 5%

In reaction to Tuesday's filing, GM spokesman Jim Cain said, "We will not be providing a comment"

But Cain added that GM has not sold its shares in Lordstown Motors

After the news broke, Lordstown Motors shares closed with a 16.3% decline at $11.22

Not necessarily bankruptcy

Even if GM does nothing to unload its stake in Lordstown Motors, GM may not be too badly scathed in a Lordstown bankruptcy, analysts said

"GM would lose its investment likely in its entirety if Lordstown went bankrupt," said auto analyst David Whiston

"A going concern issue does not definitively mean bankruptcy, but it does mean the auditors feel things as they are, as of the date of the auditor’s opinion, do not make the auditor confident the company can definitively make it through the next year"

Essentially, auditors have substantial doubts as to Lordstown Motors' survival over the next year, Whiston said

Lordstown Motors plans to make the Endurance pickup to be sold to commercial fleet customers

The Lordstown Motors all-electric Endurance pickup goes into production this fall

It has more than 100,000 pre-orders from commercial customers

The fix when a company has such doubts typically involves big cost controls and/or raising more capital

If it can't do either and it fails, GM loses its stake

"For GM the loss would be noncash in the quarter of a bankruptcy filing," Whiston said

"But the money would go to waste. GM is big enough that it shouldn’t matter much to their financial health"

Lordstown Motors spokesman Ryan Hallett declined to comment beyond the securities filing

But he said the company is committed to "our continued focus on beginning production at the end of September. I’m not able to comment any further, other than to say that we are excited to welcome our invited guests in to see our progress during Lordstown Week"

Lordstown Week is a media tour scheduled for June 22 and 23

GM repossesses the factory?

In 2018, GM announced it was closing its Lordstown Assembly Plant because of declining sales of the Chevrolet Cruze subcompact car built there

The last Cruze rolled off the line in early 2019 and later that year, GM sold the 6.2 million-square-foot facility to Lordstown Motors

GM's stake in Lordstown Motors mostly reflects the selling price of the plant, equipment and the value of the in-kind contributions GM made to help Lordstown Motors "in their drive to complete the purchase and launch their product," Cain said

In the meantime, GM remains active in the area, partnering with a division of LG Chem on construction of a battery factory right near the old Lordstown Assembly plant, which will start running early next year

> Ironworkers at Ultium Cells LLC's battery cell manufacturing facility marked a construction milestone on 19 February 2021 with the final beam installation at what will soon be a 2.8-million-square-foot operation in Lordstown, Ohio <

> It is a joint venture between GM and LG Chem that will make Ultium battery cells for electric vehicles and create more than 1,100 new high-tech jobs <

Depending on how the deal between GM and Lordstown Motors was structured when GM sold the building to Lordstown Motors, a Lordstown Motors bankruptcy could put the factory back on GM's ledgers

"It’s possible that GM could repossess the factory," said Sam Abuelsamid, principal analyst of E-Mobility for Guidehouse Insights in Detroit

"If the debt was traded for equity and Lordstown Motors goes under, then GM would probably lose it all, although again depending on how the deal was set up they might get back the factory or something from a liquidation"

Worst case, Abuelsamid said, is that GM loses it all, but given that it's $75 million, "it’s relatively minor for GM. The goodwill they got from essentially giving the factory to a startup was probably worth it"

"Another blow' to the valley"

The idea that GM got any goodwill is subjective

Former UAW Local 1112 President Tim O'Hara said many of the former union members who worked at Lordstown Assembly when GM owned it had hoped Lordstown Motors would offer them similar jobs

The latest bad news from Lordstown Motors isn't surprising for those living in northeast Ohio's Mahoning Valley, he said

"We expected it," O'Hara told the Free Press. "But it's another economic blow to the Mahoning Valley if Lordstown Motors ultimately fails"

In late May, Lordstown Motors reported a first-quarter net loss of $125 million

It warned at that time that it needs more money to continue on

The startup automaker has not yet put any production models on the road, but Burns said he expected production of the Endurance electric pickup this year to be limited to "at best" half of the initial expectation, which was about 3,000

On 13 January 2021 a prototype "mule" of the Lordstown Motors Endurance pickup caught fire along 12 Mile Road in Farmington Hills just minutes into a test drive

In January, engineers were testing an Endurance pickup prototype near Lordstown Motors Research and Development Center in Farmington Hills

The prototype made it about a mile from the center before it erupted into flames, burning down to its tires

The company attributed the fire to human error but provided only a limited explanation in comments to the Free Press in February

In April, another prototype competing in a 280-mile off-road race in Baja California only made it 40 miles before dropping out

Lordstown Motors is also being investigated by the Securities and Exchange Commission after the Hindenburg research firm earlier this year labeled Lordstown's claimed vehicle preorders as largely fictitious, offered in order to "raise capital and confer legitimacy"

On May 26, Burns highlighted some positives from the quarter such as having built 48 out of 57 of its beta vehicles, or preproduction test models

Also, he said the company is on schedule to conclude the beta program by the end of June