Short Seller Takes Aim at Another EV Maker
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Short Seller Takes Aim at Another EV Maker

Not all EVs are built the same in market.

By Al Root
Wed, Mar 17, 2021 11:11amGrey Clock 2 min

Many new electric-vehicle start-ups have no sales and big aspirations. Electric truck maker Lordstown Motors is one of them. The company doesn’t sell EVs yet, but expects to start selling its all-electric truck called Endurance later in 2021. After the launch, Lordstown projects explosive growth off its 2021 base in 2022 and beyond.

One short seller, however, isn’t buying it.

On Friday morning, Hindenburg Research published a negative research report about Lordstown Motors (ticker: RIDE). The report makes several claims, notably that not all of the preorders the company has claimed are real.

The report is hitting the stock. Shares are down 20%, at $14.18, in Friday morning trading. The S&P 500, by comparison, is down 0.5%. The Dow Jones Industrial Average is up 0.5%.

On Jan. 11, Lordstown reported more than 100,000 preorders for its Endurance pickup truck launched this past summer. Hindenburg claims in its report that it has talked to some Lordstown preorder customers, and points out some it found that don’t have the cash to buy ordered trucks and that preorders don’t carry a commitment to purchase or a penalty to cancel.

Lordstown wasn’t immediately available to comment on the Hindenburg report.

Preorders in the EV industry are fairly common. Tesla (TSLA), when it launched its Cybertruck, regularly reported preorders. Tesla racked up hundreds of thousands in vehicle preorders before it stopped reporting the number. A Cybertruck could be reserved for US$100, which is fully refundable.

Hindenburg is the firm that published a negative research report about electric- and hydrogen-powered trucking company Nikola (NKLA) back in September 2020. Hindenburg alleged Nikola management misled investors. Nikola denied the claims. The report, however, led to the departure of company founder Trevor Milton.

An internal investigation conducted by an outside firm at the behest of Nikola followed and, as a result, the company disclosed in its annual report nine statements made by Miltion which may have been partially untrue.

At the time of the report, Hindenburg was short Nikola stock, betting that its price would decline. Now, Hindenburg is short Lordstown stock and stands to gain as it falls.

Lordstown became a publicly traded company in 2020 after merging with a special purpose acquisition company. The company, founded by Steve Burns, purchased an Ohio plant from General Motors (GM) to kick-start its growth plants.

The company projects more than $100 million in sales for 2021, growing to $1.7 billion in sales in 2022 and then to $5.8 billion by 2024. Vehicle deliveries over that span are projected to go from 2,200 in 2021 to more than 100,000 in 2024.

Lordstown will report fourth-quarter results on March 17 after the market closes. Investors and analysts will have a chance to hear from management then.



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China’s EV Juggernaut Is a Warning for the West

Competitive pressure and creativity have made Chinese-designed and -built electric cars formidable competitors

By GREG IP
Thu, Jun 8, 2023 4 min

China rocked the auto world twice this year. First, its electric vehicles stunned Western rivals at the Shanghai auto show with their quality, features and price. Then came reports that in the first quarter of 2023 it dethroned Japan as the world’s largest auto exporter.

How is China in contention to lead the world’s most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese and South Korean nameplates? The answer is a unique combination of industrial policy, protectionism and homegrown competitive dynamism. Western policy makers and business leaders are better prepared for the first two than the third.

Start with industrial policy—the use of government resources to help favoured sectors. China has practiced industrial policy for decades. While it’s finding increased favour even in the U.S., the concept remains controversial. Governments have a poor record of identifying winning technologies and often end up subsidising inferior and wasteful capacity, including in China.

But in the case of EVs, Chinese industrial policy had a couple of things going for it. First, governments around the world saw climate change as an enduring threat that would require decade-long interventions to transition away from fossil fuels. China bet correctly that in transportation, the transition would favour electric vehicles.

In 2009, China started handing out generous subsidies to buyers of EVs. Public procurement of taxis and buses was targeted to electric vehicles, rechargers were subsidised, and provincial governments stumped up capital for lithium mining and refining for EV batteries. In 2020 NIO, at the time an aspiring challenger to Tesla, avoided bankruptcy thanks to a government-led bailout.

While industrial policy guaranteed a demand for EVs, protectionism ensured those EVs would be made in China, by Chinese companies. To qualify for subsidies, cars had to be domestically made, although foreign brands did qualify. They also had to have batteries made by Chinese companies, giving Chinese national champions like Contemporary Amperex Technology and BYD an advantage over then-market leaders from Japan and South Korea.

To sell in China, foreign automakers had to abide by conditions intended to upgrade the local industry’s skills. State-owned Guangzhou Automobile Group developed the manufacturing know-how necessary to become a player in EVs thanks to joint ventures with Toyota and Honda, said Gregor Sebastian, an analyst at Germany’s Mercator Institute for China Studies.

Despite all that government support, sales of EVs remained weak until 2019, when China let Tesla open a wholly owned factory in Shanghai. “It took this catalyst…to boost interest and increase the level of competitiveness of the local Chinese makers,” said Tu Le, managing director of Sino Auto Insights, a research service specialising in the Chinese auto industry.

Back in 2011 Pony Ma, the founder of Tencent, explained what set Chinese capitalism apart from its American counterpart. “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share,” he said, according to Fast Company, a technology magazine. “In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China—execution is.”

Thanks to that competition and focus on execution, the EV industry went from a niche industrial-policy project to a sprawling ecosystem of predominantly private companies. Much of this happened below the Western radar while China was cut off from the world because of Covid-19 restrictions.

When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of green plates, a sea of Chinese brands,” said Le, referring to the green license plates assigned to clean-energy vehicles in China. “They hear the sounds of the door closing, sit inside and look at the quality of the materials, the fabric or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”

Manufacturers of gasoline cars are product-oriented, whereas EV manufacturers, like tech companies, are user-oriented, Le said. Chinese EVs feature at least two, often three, display screens, one suitable for watching movies from the back seat, multiple lidars (laser-based sensors) for driver assistance, and even a microphone for karaoke (quickly copied by Tesla). Meanwhile, Chinese suppliers such as CATL have gone from laggard to leader.

Chinese dominance of EVs isn’t preordained. The low barriers to entry exploited by Chinese brands also open the door to future non-Chinese competitors. Nor does China’s success in EVs necessarily translate to other sectors where industrial policy matters less and creativity, privacy and deeply woven technological capability—such as software, cloud computing and semiconductors—matter more.

Still, the threat to Western auto market share posed by Chinese EVs is one for which Western policy makers have no obvious answer. “You can shut off your own market and to a certain extent that will shield production for your domestic needs,” said Sebastian. “The question really is, what are you going to do for the global south, countries that are still very happily trading with China?”

Western companies themselves are likely to respond by deepening their presence in China—not to sell cars, but for proximity to the most sophisticated customers and suppliers. Jörg Wuttke, the past president of the European Union Chamber of Commerce in China, calls China a “fitness centre.” Even as conditions there become steadily more difficult, Western multinationals “have to be there. It keeps you fit.”

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