The troubled electric truck maker Lordstown Motors announced the immediate resignation of its CEO and CFO on Monday.

The EV startup, which owns General Motors’ former Lordstown Assembly plant in northeast Ohio, also released the findings from an internal investigation of accusations of fraud made by the Hindenburg research firm.

The investigation found most of the accusations by Hindenburg to be “false and misleading,” a Lordstown Motors media statement said, but it did identify issues regarding the accuracy of some Lordstown Motors’ statements regarding its preorders.

Lordstown Motors is also being investigated by the Securities and Exchange Commission after Hindenburg labeled Lordstown’s claim of vehicle preorders as largely fictitious in order to “raise capital and confer legitimacy.”

Amid the news, GM, which owns about a 5% stake in the company, is holding its position. GM owns 7.5 million shares of Class A common stock in exchange for equity value of $75 million in Lordstown Motors.

“There is no change in the stock,” GM spokesman Jim Cain said Monday. He declined to comment on the management changes at Lordstown Motors.

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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, “in their drive to complete the purchase and launch their product,” Cain said.

‘Seasoned management’

In a media release, Lordstown Motors said CEO Steve Burns and CFO Julio Rodriguez have resigned, effective immediately and the company has started a search for permanent replacements.

In the interim, Lordstown Director Angela Strand has been appointed executive chairwoman and will oversee the organization’s transition until a permanent CEO is identified, and Becky Roof, will serve as interim CFO.

David Hamamoto of Lordstown Motors’ Board of Directors thanked Burns for his service, noting the company has “achieved significant milestones on the path to developing the first and best full-size, all-electric pickup truck, the Lordstown Endurance.”

“As we transition to the commercial stage of our business — with planned commencement of limited production in late September — we have to put in place a seasoned management team with deep experience leading and operating publicly-listed (manufacturing) companies,” Hamamoto said in a statement. “We have complete confidence in Angela and Becky, and our expanded leadership team, to effectively guide the company during this interim period.”

Strand is the managing director of Strand Strategy, an advisory firm specializing in technology, business strategy and organization development in many sectors.

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Roof is a certified public accountant and experienced financial executive who has served as a consultant to publicly traded companies and in an interim CFO capacity at companies such as Eastman Kodak, Hudson’s Bay Company, Saks Fifth Avenue and Aceto Corporation, a publicly traded generic pharma and specialty chemical company.

Questionable new management

Analyst David Whiston of Morningstar said the management change is likely the start-up’s effort to get out of its financial hole.

“New management likely needs to raise capital so whoever takes over needs to be good at that,” Whiston said.

Whiston declined to comment further as to what impact this might have on GM’s stake in Lordstown Motors, which warned Wall Street last week that it lacked sufficient capital to start production and might even be headed toward bankruptcy without making some fixes.

But assigning the company leadership roles to Strand and Roof raises doubts in some auto industry experts’ minds that the company will make it.

“If a board believes that their company can be saved, they hire a big name turnaround firm like AlixPartners, and that firm places its own people in the critical executive positions and proceeds to try to turn it around,” said Jon Gabrielsen, market analyst with Gabrielsen Consulting. “But this board has instead put the chairman of the board in as interim CEO and brought in a consultant as CFO. Generally those are not the actions of a board of directors that believes the company can be saved.”

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But Morgan Stanley Analyst Adam Jonas said Monday in a research note that a change of management was necessary for Lordstown Motors to move forward and investors should expect some volatility to preorders and preproduction during the transition to finding a permanent CEO and CFO.

“We continue to believe the biggest issue facing the company is the dependency of the proposition systems in-hub motors,” Jonas wrote, referring to the motors being located in each of the four wheel wells.

“While a change of architecture would add as much as a year or two to the start of production, we believe moving to an alternative motor strategy or an entirely different product and go-to-market strategy altogether may be required to preserve sustainable equity value,” Jonas wrote. “It is our understanding that Steve Burns was the primary proponent of the hub motor system.”

Lordstown troubles

In 2018, GM announced it was closing its Lordstown Assembly Plant because of declining sales of the Chevrolet Cruze subcompact car built there. The last Cruze rolled off the line in early 2019 and later that year, GM sold the 6.2 million-square-foot facility to Lordstown Motors.

But GM remains active in the area, partnering with a division of LG Chem on construction of a battery factory right near the old Lordstown Assembly plant, which will start running early next year.

Then on June 8, in a government filing, Lordstown Motors said it didn’t have enough money to start commercial production and it had doubts whether it can continue, stating it would be a going concern through the end of the year. “Going concern” is a legal phrase companies use to warn investors they might not make it.

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Fire in Farmington Hills

Lordstown Motors has had a series of troubles and set backs this year.

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.

On Monday, the special committee that conducted an internal investigation of the Hindenburg report accusations and other issues, 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 non-conforming parts on a battery pack that had been manually reworked for assembly on the prototype.”

As a result, during the test drive, the driver accelerated beyond the expected test parameters for that prototype and the rapid acceleration along with the faulty connection point caused the battery to ignite. Lordstown Motors reported the incident to the relevant regulator and has taken steps to address the isolated issues that contributed to this incident, the special committee report said.

“The production process now in place and the automation of battery pack assembly are intended to ensure that this type of issue does not recur,” the committee report said.

‘Inaccurate’ preorders

The Hindenburg Report also stated that Lordstown Motors’ plan to start production in September was unrealistic based on design changes, a failure to complete testing, a lack of battery pack manufacturing capability and other manufacturing problems.

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The special committee concluded that, “while various factors could lead to delays,” the projected September start of production remains achievable” and delivery to customers will be the first quarter of 2022.

Hindenburg also raised concern around the company stating it had 100,000 preorders for the Endurance. The special committee said Lordstown Motors has repeatedly disclosed that its preorders are non-binding and they might not be converted to actual orders.

Most Lordstown Motors’ preorders did not require a deposit, though those submitted through a website required a refundable $100 payment, the committee report stated.

Lordstown Motors has obtained “tens of thousands of preorders” from fleet customers and if converted to orders, it will comprise, “substantially all of the Company’s expected production volume through 2022.”

But Lordstown Motors made some inaccurate disclosures regarding preorders, the report said.

For example, Lordstown Motors said its preorders were primarily from commercial fleets. In fact, many preorders were from “fleet management companies or other end users that indicated interest in purchasing Endurance trucks, similar to commercial fleets, and so-called ‘influencers’ or other potential strategic partners that committed to attempt to secure pre-orders from other entities, but did not intend to purchase Endurance trucks directly,” the report said.

One entity that preordered a large number of pickups does not have the money to complete that purchase, the report stated. Other companies’ preorders were too vague or weak to have been included in the total number of preorders disclosed, the report said.