In this episode of Industry Focus: Energy, Motley Fool auto specialist John Rosevear joins the show to break down the whirlwind of bad news that's hit Lordstown Motors (RIDE 0.87%) over the past month. And he shares his thoughts on a variety of other auto-related news, including Solid Power's SPAC plans, GM's (GM +1.53%) Texas joint venture with Shell (RDS.A +0.00%) (RDS.B +0.00%) in EV charging, Audi's EV plans, and Amazon's (AMZN 1.19%) relationship with Plus Trucking.
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This video was recorded on June 24, 2021.
Nick Sciple: Welcome to Industry Focus. I'm Nick Sciple. This week, John Rosevear joins the show to share his thoughts on the Lordstown Motors saga and update us on the latest in automotive news. John, welcome back on the podcast.
John Rosevear: It's great to be back, Nick.
Sciple: Yeah, great to have you. It's a busy year. We want to lead off today by starting about this Lordstown Motor saga. That's something that's been going on for the past several months. We've had a flurry of news in the past couple of weeks: executive departures, going-concern warnings with the SEC. What is going on here with Lordstown Motors, ticker RIDE?
Rosevear: Well, let's set the stage by explaining to folks who might not know the company, who Lordstown is. Do you all remember a few years ago when former President Trump got quite upset about a GM plant in Ohio that was closing? That was in Lordstown, Ohio, the name here is not a coincidence. The deal that everybody's struck was that this GM factory which had built the Chevy Cruze, GM would sell it, hand it off, whatever, to this start-up that was a spinoff from Workhorse Group, the electric van maker, called Lordstown Motors. Lordstown had a design that had been created all or in part by Workhorse for an electric pickup. The idea was, they're going to take over this GM plant, they're going to build electric pickups here. The pickups are optimized for fleet use, and are supposed to go into production this fall. That was the story. But as we know, over the last few months, the story has developed some wrinkles. It started back in March where Hindenburg Research, which is the short-selling firm that sort of blew a hole in Nikola last year, as we may recall, and among other things, their founder resigned and so forth. They dropped a report in mid-March saying, among other things, Lordstown had greatly exaggerated the pre-orders they had for this pickup, which is called The Endurance. Also saying that the pickup is not close to production; there's no way it's going into production this fall, blah blah blah. Well, this was a big to-do because on the one hand, short-sellers say things, on the other hand Hindenburg had a track record specifically in electric vehicles, very specifically in electric trucks. A few days later, Lordstown confirmed that the SEC had requested some information. They had opened up an investigation on some level, and they stood by it until they didn't. Right?
Sciple: Right. This month things have really escalated quickly to use that anchorman reference there, so June 8, Lordstown issued a going concern warning, basically confirming some of the allegations that Hindenburg had made, said quote, "The company believes that its current level of cash and cash equivalents are not sufficient to fund the commercial scale production and the launch in sale of their vehicles. These conditions raised substantial doubt regarding our ability to continue as a going concern for a period of at least one year."
Rosevear: Hang on just a second, we should explain. A going-concern warning is something you put in a regulatory filing, an SEC filing when your auditors make you do it. What it means is your auditors aren't sure you're going to be around a year from now. It's not just stuff we're saying in the fine print, this is actually a fairly big deal. It is a red flag for investors. It should always be a red flag for investors. They did this in a very revised version of their 10-K, their annual report for last year. This was the proverbial hit like a ton of bricks kind of thing.
Sciple: Exactly. Then even further negative news, on June 14, the CEO and the CFO resigned; the CEO Steve Burns and CFO Julio Rodriguez. We had new management be installed, or new folks rise up in the company.
Rosevear: What happened that day was the Independent Board of Directors, the ones who aren't directly affiliated with the company, had hired a law firm to investigate the Hindenburg report, the short-sellers report from [...] cause to think that maybe we exaggerate our pre-orders, and by the way, our CEO and CFO are resigning effective immediately. It was like that. Then the next day, the president, Rich Schmidt, comes out and says, "Well, actually we do have binding orders. We have enough binding orders from customers to book production through sometime in 2022, blah, blah, blah, blah, blah. Then what happened?
Sciple: More SEC news two days later, right?
Rosevear: Yeah. Then there was a media event at the Automotive Press Association in Detroit, which is a club of people who cover the auto business. I used to be in it, I'm not sure I still am. But they went and said, Lordstown has enough money, we're going to begin production, we're all good, everything. Then on Thursday, they dropped an 8-K, which is the news-update SEC filing. They said, "Well, in fact, we have no binding purchase orders." This is like the legal department went back and corrected them. So the stock goes, "boop-boop" on all of this during that week. It's been very volatile. But in fact, they have no definitive purchase orders. That seems to be the story, they don't have any purchase orders that are actually definitive. They have expressions of interest from various fleet clients, large, small, and otherwise, including apparently some companies that have never bought fleet commercial vehicles before. And that's where things stand as far as we know.
Sciple: Right. As the company sits today, there has been rumors of the company's struggles and inability to build vehicles, and as we've seen more and more of these regulatory filings come down and executives depart and things like that. It's starting to transition more and more from allegation to definitive reality, I think, as we see, these disclosures are moving out. So as someone who watches this space, where does Lordstown go from here? It's still like a $2 billion market cap for the company.
Rosevear: Well, they say they are seeking strategic partners, or they're evaluating strategic partners is how I think they put it. I don't know who would invest in this at this point without taking a really big controlling stake or something like that, and at a $2 billion valuation, I'm not sure you want to put that much money in here. Yesterday or Tuesday, they did an open house where journalists came out and said, "Well, there isn't a lot of machinery in the factory. We drove their truck." There was one analyst, Joseph Spak of RBC, I think, who said, "Yeah, OK, so I've driven the Lordstown Endurance. It's not nearly as good as the F-150," the electric F-150 that Ford showed in May, which he had also driven. He said, I don't think this is really a competitive product and so forth. Folks from The New York Times said, they're building vehicles by hand here. There isn't much tooling, there isn't much automation, and so on and so forth. I don't know how they're going to have the truck in production in two, three months. So it's not clear where the smoke and mirrors are and what is actually going on here.
What seems to be the story if you squint is that, even though they raised a lot of money last year and they swore up and down it would be enough to get the truck into production, they now don't seem to have the money to get the truck into production on any sustainable scale. That may be because they thought they were counting on pre-orders which didn't materialize. There may also be a subtext here. I think I've said before on this program that I wonder if some of their fleet buyers who may have been thinking about ordering a few 100 Lordstown trucks rethought that after seeing Ford's truck and said, maybe we just want the F-150 Lightning Pro, which is Ford's fleet-optimized truck, which, by the way, starts at a significantly lower price than the Endurance. The Endurance is going to be $54,000 or $55,000 starting; a Ford truck starts at like $41,000, delivered. It's $50,000, I think, with the extended range and a bunch of other goodies. So for total cost of ownership, Ford has a very strong argument here, and a lot of these companies have been buying Fords for years and years. They're going to swing to a product that just drops in with what they already have.
That may be part of the story here, that some orders they were counting on evaporated over the last couple of months. I don't know that for sure. I suspect it's part of it. But in any event, they've told a story and the facts on the ground don't seem to back it up, and yet somehow the stock is still trading around $10 for reasons I'm not sure I understand, because you have to squint awfully hard to see a bull case here, and even assuming the truck was going to production this fall, they're competing with Ford in the fleet market. Ford owns the fleet market. They're the biggest player on the fleet market. The F-150 and its Super Duty siblings, the F-series as we call it, are the biggest selling pickups in the fleet market in the U.S. and North America. To walk in as a new entrant when we don't know if you're going to be around to provide parts and service a year, two years from now, versus I've got 300 Ford vehicles operating, and these new vehicles come from the same supplier, the up-fitting parts and special adaptations, we have on our existing pickups. We'll fit the new Fords, the electric Fords, and all of that. It's hard to see them making the kind of sales that would seem to be baked into their valuation.
Sciple: Tough spot to be and it's certainly competition is intensifying here in the EV space. I think skepticism among investors is maybe moving up as we see more and more of these types of things play out, we'll see what happens. But you mentioned Ford, I want to move on to the next story I wanted to discuss today. We mentioned Lordstown has come public via SPAC, it's been a number of years in the EV space. We've got another one coming down. Solid Power, a solid-state battery start-up, has announced plans to go public via a merger with SPAC company, Decarbonization Plus Acquisition III, what a great name. What stands out to you about this Solid Power deal?
Rosevear: Solid Power has been on our radar for a little while now. There was a lot of interest in QuantumScape, another solid-state battery start-up that went public, I guess late last year and pulled the curtains back on their technology in December. They do seem to have a prototype solid-state battery, which is a breakthrough technology versus existing lithium-ion technology. This is something that will allow electric vehicles to have longer range with less weight, lower cost if it all pans out. But at the same time, this is a technology that researchers have been chasing for years and years. And making a solid-state battery that lasts a long time that can be produced at a reasonable price has proven to be a very big challenge. But with electric vehicle interest booming, there has been a lot more interest in this space. The thing to know is that this is a sector, first of all, where things move on, what you might think of as a glacial time frame. QuantumScape is at this 10-year, Solid Power has been at this seven or eight years. They were founded in 2012, so I guess it's about nine years now.
What makes Solid Power a little different from QuantumScape, QuantumScape has partnered with Volkswagen and they are talking about production in 2024, 2025, beginning production of their solid-state battery. Solid Power has partnered with Ford and BMW. They are already producing a small-scale prototype battery on a pilot line. They expect to begin producing pilot production of their full-size batteries next year and providing them to Ford and BMW for evaluation in their upcoming electric vehicles. One twist Solid Power has is that their batteries can be made on existing lithium-ion factory production lines with some minor changes. Whereas some solid-state battery designs, they're anticipating you've got to build a whole new factory from scratch. Whereas Solid Power says, we can adapt existing tooling and processes and so forth to make our batteries. This is something somebody could put into production at lower costs on a shorter time frame and so forth. Which is what makes Solid Power interesting. They are relatively ahead of the other competitors we know about in this space in terms of getting to production. They have two big partners. The deal values them at $1.2 billion, which on the one hand is expensive for a company with very little revenue.
On the other hand, it is something of a bargain given the valuations that companies like QuantumScape have hit off and on over the last six, eight months. It's an intriguing company. I've talked to them a little bit. My sense is that the management team is realistic. They know there's stuff. They've got their heads down. They are like, "We've got partners, we've got a product to deliver and we're working hard to deliver it." It is a company that's definitely worth a closer look. Is it buy? I'm not sure yet. I know I always say that, but we come back to them. If you want a solid-state battery company in your portfolio, it's probably worth having a little bit of this. All of these companies are to some sense moonshots, we don't know when or how the technology is going to pan out. We don't know if it's going to end up being a mass-market technology or a technology that automakers use in small quantities and performance vehicles or upscale vehicles or something like that. It is a murky space, it is a space where the technology moves really slowly, as I said before. But it's also a technology that could be really dominant in 10 years if things go a certain way. A player like this that is tied into two automakers stands to do quite well if their tech pans out, if the tech pans out. If you're holding a bunch of electric vehicle stocks and thinking of some of them as moonshots, this might not be a bad one to add.
Sciple: Yes, I think both QuantumScape and Solid Power, I would say are comfortably in the start-up bucket venture capital type investment if you're investing in them. Today, neither of them have products that you could go buy out at retail. These are still research and development outfits. But I would say when you look across the universe of start-ups, there aren't a lot of folks that are partnered up with Ford and BMW in Solid Power's case, not a lot of folks partnered up with Volkswagen in the case of QuantumScape. I think when you look among the number of start-ups out there working in this space, these folks have some advantages, but still a lot of execution between now and me and you being able to go buy one of these things in our vehicle or whatever it may be.
Rosevear: Yeah. We're talking about testing these in vehicles in about a year for Solid Power. For QuantumScape it may be more like two or three years. This is not coming to market anytime soon. That said, there are other solid-state battery efforts that we don't know a lot about. We know that Toyota is working on one. They have hinted they may have something to show us next year. We don't know whether that's the thing that QuantumScape showed us directionally, here's our tech, here's where we're going, here is our time frame over when they're going to roll out a car. I don't know either way. But yeah, get used to the idea of solid-state batteries if you're someone who watches the electric vehicle space and not just for cars, but for all other things; drones, helicopters, other electrified mobility products. This could become a significant technology over the next few years, there are people working to make it a significant technology. Still something of a moonshot.
Sciple: You mentioned more and more EVs coming to market, EVs becoming more and more mainstream. That ties into the next story we wanted to discuss. Audi gave some updates on their electric vehicle plan in the past week, are not going to introduce new internal combustion engine models after 2026. What should we be paying attention to with Audi?
Rosevear: Well, they did put an asterisk in that to say, Audi has a significant presence in China, and they say we're not completely sure how it's going to in China. But their intent is to not spend any money developing new internal combustion vehicles within five years. That's a big deal, and we've seen more and more to put it in a little bigger picture, automakers saying, "The timeline is accelerating, we're committing to this," just in the last few months, and I think people are seeing in the marketplace that buyers are showing up or showing interest in new electric vehicles perhaps more enthusiastically than people expected at this point in their evolution. Specifically, I think, to go back to Ford here for a moment, the electric F-150 in response to that, I think opened a lot of eyes. I think there might have been a lot of companies, several companies watching and waiting and sitting on the fence saying, "Should we go full speed here or should we wait another year?" I think after that, some people said, "All right, we're going full speed here." I'm not saying Audi did this because Ford, but just the trends that we're seeing where people in the auto industry are saying, "We're increasing our investment. We're pulling forward those new models, we're going to build four battery plants instead of two," and so on that we've talked about over the last month or two. There is a sense now that this is accelerating. We've said for years, eventually, electric vehicles are going to hit critical mass and go rolling out. That's now insight I think is the takeaway here.
Sciple: We'll see what happens with Audi. Certainly a lot of momentum behind the shift to EV. You talked about Ford's big announcement, GM getting more and more involved in electric vehicles. They announced a new joint venture this week on Wednesday with Shell. What can you tell us about what's going on with Shell and GM?
Rosevear: Well, I am not an oil analyst, but obviously Shell is looking for a business model here in the electric vehicle future. If you own a whole lot of gas stations, putting high-speed electric vehicle chargers on the forecourts is not the worst thing that you could come up with as a plan B. I know that BP in Europe is doing something similar. What GM wants is to make this as easy as possible, both for retail buyers and for commercial fleet buyers. Ford has been doing something similar. Just in terms of charging, charging at home, charging at your workplace, charging at a depot for fleet customers. Right here, what they're doing with Shell is fixed-rate energy plans. These are backed by 100% renewables. They're available for owners of GM vehicles in Texas. They're going to expand this over time is the idea. One of the ideas here is that the charging plant recharges overnight when rates are lower. We all know Texas has had some adventures recently in delivering electric power at reasonable rates and so forth. So this might be more of an acute concern to people in Texas than people elsewhere, recharging overnight, taking advantage when rates are low to use that time to recharge. This is something other automakers have talked about. Tesla has talked about this, Ford has talked about it and so forth. This is GM coming in here with a partner to start delivering this to retail customers. This is going to be, again, part of a broader suite of products. General Motors, like the other automakers who are now spending big in this space, just want to make this as easy as possible for everybody. It's better for everybody when people recharge at home rather than at the Tesla superchargers. I know in some parts of the country, people talked about the huge lines at the Tesla superchargers and so forth. Some of the Tesla fans say, "Charge at home. Come on, it's easy." If you live in an apartment, maybe that's not easy. But for a lot of people, they could be charging at home. That's cheap and easy and it just happens overnight if you remember to plug in. You can optimize that to take advantage of lower rates at night when people aren't running air-conditioning and computers and lights and so forth, quite so much. This is something, again, we're seeing from a lot of people, just partnerships throughout the industry to try to make this as easy as possible. That's the theme here.
Sciple: Yeah, automakers finding other new ways to increase revenue. Whether it's helping you charge or helping you servicing or any of these other things.
Rosevear: [GM CEO] Mary Barra's favorite word is adjacencies, things where we can find new lines of revenue that are adjacent to our existing core business of selling cars, trucks, and SUVs.
Sciple: Well, that's a perfect transition too. It's the last topic I want to talk about today, that the company that is probably the best ever in history at finding adjacencies to expand their business [laughs] into is Amazon, and their news emerged this week that Amazon has placed an order for 1,000 autonomous driving systems from self-driving truck technology start-up, Plus, and has acquired the option buy a stake of as much as 20% of this company. John, what were you paying attention to with this Amazon deal?
Rosevear: It's a good question. Plus Trucking is one of those companies where we've heard the name a few times, and then all of a sudden they're out in front of us, they are in stealth mode for a long time. I mean, these are self-driving big rigs, this is thought to be one of the first likely mass applications of self-driving technology, big trucks on highways. Where they go from depot to depot and then you switch to human drivers to make the local delivery and so forth. This is a space that has attracted significant investment. Plus is one of those companies that's attracted investment. They're backed by a number of ventures, including a Chinese truck company, the English name is Full Truck Alliance, but also Shanghai Automotive Industry Corp, which we know as SAIC, which is the joint venture partner of both Volkswagen and General Motors. I mean, a very big player, government owned, owned by the City of Shanghai basically. But they are a company that has their fingers in a lot of promising pies that have been very profitable over the last several years. They are a backer here. Plus has some partnerships with heavy truck makers, including Cummins and Iveco in Europe. They are looking to try and deliver this sometime in the next year or so. Again, I don't have a good read on their technology.
This is all just coming out in the last several days. But Amazon's interest and potentially large investment here makes it definitely noteworthy. They have hired industry veterans, they have somebody from Navistar. Amazon folks have come into the company. This does look like something where Amazon is going to develop a partnership. Obviously, Amazon's own logistics investments have been huge, and to the extent that they've pushed the technology in so many ways in terms of both warehouse automation and logistics automation and so forth. Big rigs on highways that go robotically from depot to depot, that can drive longer stretches than a human driver, more safely than a human driver and so forth. Obviously that's of interest to a company like Amazon. Their interest says something about the state of Plus Trucking's technology. I don't have more of a read on it than that for you yet, I have talked to some people who have at this and I'm looking to hear more about it. Hopefully in a week or two, we can come back and talk about that some more.
Sciple: Yeah, Plus is another one of these companies coming public via SPAC is planning to merge with Hennessy Capital Investment Corp, the ticker is HCIC, that deal values the company at about 3.3 billion. Same ideas we talked about earlier with Solid Power, lots of potential here in the future, but still not something being deployed commercially. It's a great spot to be as a start-up, to have Amazon backing you, but we'll see what happens with Plus. Maybe broadening out a little bit with Amazon. If you look back over the past year-and-a-half or so, Amazon has really been aggressively moving into this autonomy and EV truck space, whether it's the Rivian investment or they acquired Zoox. Now, you have this move with Plus. Do you see Amazon as being really one of these big major players and autonomous vehicles in the same way we've thought about maybe Google in the past?
Rosevear: I think Amazon wants it for their own account first and foremost. I'm not sure Amazon is going to be interested in the business of selling self-driving vans or whatever, though, who knows? But I think this for Amazon is about their logistics play, they're ongoing logistics investment. Let's bring in this technology, let's see if we can make it work, let's see if we can use it profitably in our own business. With Rivian, they've made an investment. Rivian is an electric truck start-up that is very close to production. Rivian is going to be building electric delivery vans; these are not self-driving at the moment. But they are on Rivian's technology. Rivian also comes forward among investors and advisors, so they are Ford advised. They are, I think it's 100,000 electric delivery vans for Amazon, so it's a significant order for them. Again, this is kicking the tires of a lot of different things. Amazon throws off so much cash, happy Amazon shareholder here by the way. Amazon throws off so much cash that they can do things like this. Again, like Google, bet on something that may be a moonshot, they may not pan out for several years. For me, again, as an Amazon shareholder, it's an interesting indication of their thinking. It's in line with what they've been doing for years and years.
As I said, automating warehouses, now automating logistics and so forth. In line with a lot of the other stuff they've talked about, drone deliveries and [laughs] all this kind of stuff. Drone deliveries from your local Whole Foods, which they bought, which some people thought that might be a real estate play as much as anything else to get Whole Foods locations, which are all in upscale suburbs or upscale parts of cities. It is a clue into their thinking, the fact that they have kicked the tires of Plus Trucking and gone this far with them, and that Plus Trucking does have some investors who are maybe not immediately recognizable to those of us in the West, but SAIC is a big deal for an automaker. They're a big Chinese automaker. Full Truck Alliance is a fairly big deal. Cummins is a big deal, and so forth in heavy trucking. This is a company that deserves to be on our radar.
Sciple: Something to continue watching. I think pretty much anything Amazon gets involved in is worth paying attention to. But of course, the space across the board. Lots of exciting stories to be told and ones that we'll continue to follow here with you, John. Before we let you go, I wanted to ask you, so we talked a lot about autonomy, electric vehicles, all that stuff. There's a lot of very headline grabbing things in the auto industry. But is there a story right now that you're paying attention to that folks maybe aren't seeing at the top of these headlines that should be on folks' radar?
Rosevear: It plays into some of the things we've talked about. But specifically, I think people should be talking more about electric commercial vehicles and focusing on the side of that. Obviously, that's where Lordstown was aimed, that's where Workhorse Group is aimed. But also even for companies like Ford. Ford sees the adjacencies to use that word, the software and so forth, that they can sell with electric pickup trucks and delivery vans to their commercial and government fleet customers as a significant revenue booster. For a fleet that's looking at total cost of ownership that's maybe under board pressure or regulatory pressure to green up their operations, electric vehicles make a ton of sense in a lot of ways. Companies big and small are moving to meet these needs.
This may be a place that gets to critical mass before the retail market does, at least in North America. It is something that I think people should be watching more. Ford's move, just to go back to the same example -- we've been talking about Ford a lot today -- but it's a good example of this right now. They have basically put all of their commercial vehicle operations for the first time into a new line of business under Ted Cannis, a veteran Ford executive, who is really a terrific salesman and communicator and prophet for Ford's technology, is running this operation. They're rolling out almost a sub-brand, what they called the Pro brand. There's a pro version of the F-150 Lightning that's designed for fleets. It's their work trucks, therefore commercial fleets are for government fleets and so forth. Just the amount of investment that's going into this space, I think it's under the radar of a lot of investors who see Tesla and then look for companies that are like Tesla, fleet stuff, 500 trucks for a construction company, 1,000 trucks for Verizon or whatever. It kind of goes under the radar of a lot of individual investors. But this is big business, it is good profitable business, it is business that companies like Ford and GM compete aggressively to win, and it's where some new entrants like Lordstown, like Workhorse are aiming very carefully to try and get into that market. The speed at which that market is going should be more on folks' radar.
Sciple: Well, John, I think you gave me an idea for a future episode of the podcast. I hope you'll join me in the future to talk about that, but until then, thank you for joining me as always.
Rosevear: Thanks for having me.
Sciple: As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for mixing the show. For John Rosevear, I'm Nick Sciple, thanks for listening and Fool on.
