Is Lordstown Motors Fabricating Preorders? Short-Seller Hindenburg Says Yes
Mar. 15 2021, Published 11:38 a.m. ET
In February, Hindenburg Research attacked Clover Health (NASDAQ:CLOV) for reported corporate misgivings. Before that, the researcher and short-seller divulged tons of information on Nikola (NASDAQ:NKLA). A lot of the info ended up being true, but most of it hasn't been confirmed. Hindenburg's latest target is Lordstown Motors (NASDAQ:RIDE).
RIDE stock grew tremendously in 2020 and gained more than 200 percent in a two-month span. The shares have dropped more than 50 percent since Feb. 11. Will Hindenburg's claims only feed the bear run?
What Hindenburg is saying about Lordstown Motors (RIDE)
Lordstown Motors, an EV startup competing with companies like Rivian and Workhorse (just to name a few), has been accused of metric fabrication.
Hindenburg says that Lordstown Motors exaggerated the number of preorders for its upcoming electric pickup truck, Endurance. If true, this could mean that the company manipulated investors' trust.
In the report, Hindenburg said, "Lordstown is an electric vehicle SPAC with no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities." According to Hindenburg, the supposed 100,000 trucks on preorder aren't contractually binding. Many of the preorders will likely fall through. Instead of a promise, a preorder is more of a letter of intent.
Hindenburg referenced a Jan. 2021 event and said, "Lordstown’s first street road test resulted in the vehicle bursting into flames 10 minutes into the test drive."
Healthy skepticism of Hindenburg
Despite its status as a short seller, Hindenburg has historically delivered factual accounts. In the Nikola situation, Hindenburg's research ultimately led to the founder resigning and the company restructuring its executive bench.
In-depth investigative research combined with short selling is a really interesting approach. Hindenburg is undoubtedly biased, if only in the fact that it stands to make money from the stock's price falling.
However, that doesn't mean that Hindenburg's uncoverings aren't truthful. It just means that there's so much malpractice in executive business that short sellers are able to profit off of it through independent investigations. If anything, that says a lot about the nature of public companies, startups or otherwise.
Already invested in Lordstown? Best to wait until production starts to make a decision.
If you went in on RIDE stock sometime between July 2020 and now, you might as well hold on until the production debut for the Endurance, which you can expect to happen in September 2021. Otherwise, you're bound to sell at a loss—and an EV startup investment like this one could potentially pay off.
Even if Hindenburg is right about the preorder fabrication (which seems likely), on-spec orders could be Lordstown's saving grace.
If you haven't invested in RIDE, you may want to hold your horses. Hindenburg's research has historically had a negative impact on stocks like Clover Health and Nikola for at least months, until the affected businesses have a chance to get their act together following the short seller's targeted reports. There's something to be said about buying on the dip, but it's hard to say if Lordstown is at its lowest point.
