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Interestingly, General Motors has not shared any details regarding a high-profile, albeit small, investment in startup electric truck maker Lordstown Motors. The fate of firms insuring the automaker is also not known.
Lordstown Motors is a startup that is on the verge of extinction. Additionally, the brand has mentioned that it does not have enough cash to start commercial production of electric trucks.
However, a $400 million stock purchase may save the ailing automaker.
Lordstown Motors has also indicated a going concern that it has doubts about continuing through the end of 2021. Note that "going concern" is a legal phrase that organizations use to warn investors that the future is uncertain.
Lordstown woes and the $400 million lifeline
As the company's shares continued a downward trend, then CEO Steve Burns warned that production in 2021 would be cut to only 1,000 vehicles if raising the much-needed capital was a challenge.
In the first quarter of 2021, Lordstown Motors reported a net loss of $125 million and confirmed that it had a deficit of $259 million as of March 31, 2021. Additionally, Burns said that the expectation was that the brand could lose up to $380 million in 2021 but assured investors that Lordstown would close the year with almost $50 million in cash.
Undoubtedly, Lordstown Motors has had a series of setbacks in 2021. In another incident in January 2021, the company's prototype erupted into flames and burned down to its tires. The prototype only made it about a mile from the testing center.
On the other hand, Lordstown executives made things worse when they attempted to calm investors a day after the brand's CTO and CEO resigned.
Even with all its woes, saving Lordstown Motors may be possible. That is the case since hedge fund YA II PN Ltd has committed to buy up to $400 million of the brand's shares. The purchase will be over three years.
Under the deal, YA can receive nearly 35 million Lordstown shares upon the agreement's execution, and this is subject to approval by Lordstown shareholders.
The purchase of the shares is expected to give Lordstown Motors a lifeline, and industry observers have said that it is a good deal, Autoblog reported. The agreement comes just a month after the automaker warned that the future of its business was worrying.
Insight into Lordstown Motors investor
YA II PN Ltd, the investor coming to Lordstown rescue, is a fund managed by Mountainside, New Jersey-based investment manager Yorkville Advisors Global LP. According to its website, Yorkville has investments in over 700 firms in more than 20 nations. Yorkville's active sectors include cannabis, healthcare, technology, metal and mining, and energy.
Also, biotechnology company Cyto Tools, cannabis deals network Leafbuyer.com, and copper ores company Copperstone Resources are part of Yorkville's investments.
Investigations into Lordstown Motors
During the second half of 2021, Lordstown Motors intended to begin working on its Endurance pickup truck. The production was set to be at the former GM Assembly Plant in Lordstown, Ohio. The plans faltered, and a series of missteps and allegations of fraud compounded the company's issues.
As a result, the Securities and Exchange Commission opened investigations into Lordstown Motors after the Hindenburg research firm claimed that the company's vehicle preorders are largely fictitious. The Hindenburg report on Lordstown Motors suggested that the company offered preorders to "raise capital and confer legitimacy."
According to Reuters, Hindenburg also mentioned that it had taken a short position on Lordstown Motors. The research firm said that the decision to go short was based on a brand with "no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities." Additionally, Hindenburg disputed that Lordstown Motors booked 100,000 preorders for its electric pickup truck, TechCrunch reported.
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