In a reversal, Lordstown Motors’ new management said the company isn’t so bad off after all and has enough confirmed preorders for its electric pickup to start production this fall with enough money to run through early next year.
The sunnier outlook comes days after the company stated in a government filing that it did not have enough funds to start commercial production and it had concerns about continuing as a “going concern,” a legal phrasing indicating it might not make it.
The startup then ousted its CEO and founder Steve Burns and CFO Julio Rodriguez on Monday. An Insider report Tuesday interviewed 17 people who had worked with Burns, some depicting him as a visionary entrepreneur and others as a salesman who bent rules and failed to deliver on promises.
But during an Automotive Press Association webinar Tuesday, listened to by more than 240 reporters, Lordstown Motors’ new executive chairwoman and independent director Angela Strand said it’s “a new day at Lordstown Motors and there’ll be no disruptions to day-to-day operations.”
Lordstown Motors President Rich Schmidt, who runs daily operations, said the automaker is ready to start building the Endurance pickup in September. It will build about 15,000 pickups until May 2022.
“Currently we have enough funds to get us through the fourth quarter to May of 2022,” Schmidt said. He said the company has $400 million “in the bank.”
But to grow, it will need more funds and it will call on General Motors, an early investor in Lordstown Motors, for some additional capital, Schmidt said.
GM willing to listen
Lordstown Motors bought its plant in northeast Ohio and the equipment in it from GM in 2019 after GM closed down what had been its Lordstown Assembly plant.
“We’ve had good cooperation with GM,” said Schmidt. “We will talk to our original investors first, but it’s not our only option. We are going to raise the funds, because we will need funds after May.”
GM owns about a 5% stake in Lordstown Motors or about 7.5 million shares of Class A common stock in exchange for equity value of $75 million in the company.
GM’s equity stake mostly reflects the selling price of the plant, equipment and the value of the in-kind contributions GM made to help Lordstown Motors complete the purchase and launch.
Despite all of Lordstown Motors’ recent troubles, GM has held onto its stake. Those troubles included a first-quarter loss of $125 million and an ongoing investigation by the Securities and Exchange Commission over the Hindenburg research firm labeling Lordstown’s claim of vehicle preorders as largely fictitious to “raise capital and confer legitimacy.”
When asked if GM would be willing to invest more capital in the startup, GM spokesman Jim Cain said, “We are comfortable with our current relationship with Lordstown Motors and don’t envision changing it, but we are willing to listen to proposals that make sense for both.”
GM’s in-plant equipment
Schmidt has been with Lordstown Motors since November 2019, around the time it bought the 6.2 million-square-foot factory from GM.
An automotive veteran having worked at Toyota, Nissan, Hyundai, Volkswagen, J.D. Power, and Tesla Motors, Schmidt said Lordstown Motors is actively raising money now, but he did not provide any details.
Lordstown Motors had retained Cleveland investment bank Brown Gibbons Lang & Co. in November 2019 to help it raise $450 million to retool the plant.
By May 2022, Schmidt said, he expects Lordstown Motors will have $25 million to $50 million in cash. He said he is confident that once Endurance production is underway later this year, investors will see that the business “has great growth opportunity.”
For one thing, its startup costs have been mitigated by the fact that much of GM’s former equipment in the plant was usable, Schmidt said.
- GM’s body shop utilized to make the Chevrolet Cruze subcompact car is usable for the Endurance. A new body shop would have cost $500 million.
- GM’s paint shop required only $14 million in retooling. A new paint shop would cost $300 million to build.
- GM put in a new assembly line in 2016. A new assembly line would have cost $5.5 million.
Schmidt said the company has contracts with suppliers that lock in other costs for raw materials, though he noted some materials, such as steel, have gone up in price. The Endurance is made mostly of aluminum, yet the company has raised the Endurance’s starting price by $2,500 to $55,000.
The Lordstown Motors facility is mostly completed, Schmidt said. The automaker will start to program its paint shop later this week and it will build the line to install the hub motors in July. The Endurance will be propelled by motors in the hub of each wheel.
Some investors have been critical of the hub motors’ durability and urged Lordstown Motors to abandon the idea, but Chief Engineer Darren Post, who worked for GM for three decades, said, “We are sticking with the hub motors. They are durable and they are powerful.”
A union shop?
But the company has shifted when it comes to unionizing the workforce.
Around this time last year, Burns told the Free Press that the plant will some day employ 4,000 to 5,000 people depending on demand for the Endurance. At that time Burns said he would allow the UAW to organize if the workers chose to have a union.
The jobs have been reported to pay about $17 an hour, a few dollars less than what a new line worker at the Detroit Three is paid per hour in the UAW’s current contract. Burns would not confirm a wage figure at the time.
Schmidt said Lordstown Motors currently has 600 employees, 130 of which are located in its engineering center in Farmington Hills and a couple dozen in California.
When asked whether Schmidt and Strand are open to a union organizing drive as Burns said he was, Schmidt said, “We don’t have a stance on that. It’s more of a question for our employees.”
He said the team creates a culture where employees will feel “like family” and the company currently offers free breakfast and lunches. Employees also have a stake in the company’s performance.
Schmidt said company managers did have an “unofficial offsite meeting” with the UAW “just to discuss the flow,” but there are no other active talks.
In reaction to Schmidt’s comments, UAW Vice President Cindy Estrada, director of the UAW Organizing Department said, “We agree with President Biden that we can build back better. Build back better means we can protect the environment while providing good paying union jobs. We are disappointed that the company seems more committed to operating non-union than partnering with the UAW and other stakeholders to make the company successful.”
But Schmidt said employee morale is good despite the management shake-up, poor first quarter and other troubles.
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“We’re on the same path that the former CEO had us … the same timeline, same marketing plan … we just need it to be a little quicker and make decisions a little smoother,” Schmidt said.
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Contact Jamie L. LaReau at 313-222-2149 or jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.