GM holds stake in Lordstown Motors as DOJ opens inquiry into startup

The Department of Justice has opened an inquiry into electric vehicle startup Lordstown Motors, according to a report in the Wall Street Journal on Friday.

The report, which cited people familiar with the matter, said the inquiry into Lordstown Motors is being handled by the U.S. Attorney’s Office in Manhattan and is in the early phase.

When asked for a comment on the report, Lordstown Motors spokesman Ryan Hallett merely said the company is committed to cooperating with “any regulatory or governmental investigations and inquiries.” 

“We look forward to closing this chapter so that our new leadership — and entire dedicated team — can focus solely on producing the first and best full-size all-electric pickup truck, the Lordstown Endurance,” Hallett said in an email to the Free Press.

The DOJ did not immediately respond to a Free Press request for commenton Friday. 

Despite this latest news, General Motors has not sold its nearly 5% stake in Lordstown Motors, or about 7.5 million shares of Class A common stock, as of Friday, said GM spokesman Jim Cain. GM had no further comment on the latest news.

Lordstown Motors occupies the 6.2 million-square-foot facility that GM once owned in northeast Ohio. Lordstown Motors bought the facility and the equipment in it from GM in 2019 after GM closed it down.

The stock represents an equity value of $75 million in Lordstown Motors. 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.

Since then, Lordstown Motors has been plagued with troubles.

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.

Then, Hindenburg Research, in a report posted March 12, described Lordstown’s preorders as a “mirage,” saying the company has “no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities.”

Lordstown Motors’ special committee conducted an internal investigation of the Hindenburg report accusations and other issues. Its investigation found most of the accusations by Hindenburg to be “false and misleading,” a Lordstown Motors media statement said last month. But it did identify issues around the accuracy of some Lordstown Motors statements regarding its preorders.

The special committee said the fire was an “isolated event rather than one reflecting a systemic problem. Lordstown Motors conducted a technical investigation of the incident that identified the root cause of the fire to be nonconforming parts on a battery pack that had been manually reworked for assembly on the prototype.”

Then there is the matter of an ongoing investigation by the Securities and Exchange Commission, which Lordstown Motors said it is cooperating with.

In February, the SEC started requesting information from Lordstown Motors and has issued subpoenas in connection to Lordstown Motors’ move last year to become a public company, as well as Lordstown Motors’ representations about the number of preorders it had for its Endurance pickup.

Last month, the startup ousted its CEO and founder Steve Burns and CFO Julio Rodriguez in a management shakeup following a first-quarter loss of $125 million and stating in a government filing that it did not have enough funds to start commercial production of the Endurance and it had a “going concern.”

But new President Rich Schmidt, who now runs daily operations, said last month Lordstown Motors has about $400 million in liquidity and is ready to start building the Endurance in September. It will build about 15,000 pickups until May 2022, he said.