The Making of an Electric-Vehicle Fiasco

Lordstown Motors Corp. headquarters in Lordstown, Ohio.



Photo:

Dustin Franz/Bloomberg News

Yield-hungry investors have been driving headlong into SPACs (special-purpose acquisition companies), and some are now getting burned. Witness the trouble at electric-truck manufacturer

Lordstown Motors,

which may be a canary in the supposed SPAC gold mine.

The startup’s CEO

Steve Burns

and CFO

Julio Rodriguez

resigned Monday after a board committee report found the company had made inaccurate statements about sales preorders. Last week the company warned it didn’t have enough cash to begin commercial production and there was “substantial doubt” about its ability to continue as a going concern.

There’s plenty of blame to go around, including among the political class. Republicans used Lordstown to flog a Rust Belt revival. Vice President

Mike Pence

gave a speech hailing a manufacturing comeback at the maiden plant in Lordstown, Ohio, which GM had discarded in a fire sale.

Donald Trump

unveiled a model truck at the White House in September with Mr. Burns.

Investors went along for the ride. Last fall Lordstown went public through a SPAC, which is a shell company sponsored by sophisticated investors. A SPAC raises cash through an initial public offering and then merges with a startup. This allows a startup to avoid the IPO regulatory rigmarole and to make sometimes exaggerated projections without incurring liability.

SPACs have become the rage on Wall Street as investors hunt for yield amid negative real interest rates. SPACs have raised capital in 331 IPOs so far this year, up from 248 for all of last year and 59 in 2019. Electric-vehicle and battery startups are especially hot with investors chasing a green rush of government subsidies.

Like Lordstown, electric-truck startup Nikola went public through a SPAC last year. Questions soon arose over the viability of its technology, and a short-seller accused it of fraud, which the company denies. An internal company review found numerous inaccuracies in its statements, and its stock has fallen more than 70% since last June when it started trading on Nasdaq.

Lordstown and Nikola also highlight how government policy is fueling speculation in markets. The Federal Reserve has made money cheap, and President

Biden

wants to pour trillions of dollars into green energy. Investors in SPACs, beware. If EV startups crash and burn down the road, taxpayers will get smashed too.

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Appeared in the June 15, 2021, print edition.