Lordstown Motors Executives Resign Amid Inaccurate Preorder Disclosures

The prospect of capitalizing on a global shift toward electric cars has created a new generation of industry contenders. But Lordstown Motors and others have drawn scrutiny from short sellers and regulators over whether they can deliver on the plans they pitched to Wall Street.

Lordstown Motors, which plans to build electric pickup trucks at a former

General Motors Co.

assembly plant in Ohio, on Monday said

Steve Burns,

its CEO, and

Julio Rodriguez,

its finance chief, have stepped down from the company. Mr. Burns also stepped down from the company’s board, according to Lordstown Motors.

Mr. Burns declined to comment. Efforts to reach Mr. Rodriguez, including asking for comment through a company spokesman, weren’t successful.

Lordstown Motors’ stock fell nearly 19% Monday, closing at about $9.26 a share, its biggest percentage drop since it went public.

The company said Monday that a board committee had found some disclosures made about preorders for its forthcoming electric truck, the Endurance, to be inaccurate in certain respects, partially confirming claims outlined in a March report by short seller Hindenburg Research. The committee rejected other aspects of the short seller’s report, such as the assertion that a September launch date for the Endurance was unrealistic, the company said.

“It’s the latest in a pretty problematic list of developments,” said Jon Lopez, who covers the company at investment bank Vertical Group. He said he now expects that Lordstown Motors won’t be able to establish itself in an increasingly competitive market for electric vehicles. “The probability of that was low to begin with and has decreased,” he said.

The board committee was established to investigate allegations made by Hindenburg, which in its report said that Lordstown Motors had misled investors about the strength of its preorder reservations and progress toward starting production of an electric truck.

The company has said it plans to start building the Endurance, its first model, in September; but it has also walked back its production target in recent weeks, saying it now expects to only build, at best, half of the 2,200 trucks it had previously planned this year with its current outlook. It attributed the revision to higher-than-expect costs on pandemic-related expenses, industrywide supply-chain issues and outside engineering support.

Lordstown Motors has also warned it won’t be able to scale up to full production without raising more capital. It said in late May it expects to end the year with between $50 million and $75 million on hand, down from the $200 million forecast the company provided in March.

Hindenburg founder

Nathan Anderson

said that Monday’s disclosures by the company largely verifies the concerns raised in his earlier report. “The top two executives don’t resign when allegations are meritless,” he said.

The leadership changes are the latest in a series of setbacks for the electric-truck startup, which went public last year through a reverse merger with a special-purpose acquisition company, or SPAC.

The Ohio-based company said in a disclosure last week that it doesn’t have enough cash on hand to start full commercial production and has questions about whether it can continue as a going concern through the end of the year.

Lordstown Motors also disclosed at the time that weaknesses in its internal controls over financial reporting could have led to material misstatements in its financial statements. The news sent its stock sliding, and as of Monday’s close, it was down around 54% for the year.

The Securities and Exchange Commission has also launched an inquiry related to Lordstown Motors’ SPAC merger and preorders of the company’s vehicles. The electric-truck maker has disclosed it received two subpoenas and said it was cooperating with the inquiry.

The change at the top is an important first step to moving the company forward, but investors should anticipate volatility around its strategic partnerships and timelines during the transition, Morgan Stanley analyst

Adam Jonas

wrote in a note Monday.

“We felt it was untenable for the company to secure necessary new capital with a management team widely seen as potentially not leading the company into the next era of its development,” he added.

Angela Strand,

the company’s lead independent director, has been appointed executive chairwoman of its board. She will oversee Lordstown Motors during a transition period until a permanent CEO is hired, the company said.

“We remain committed to delivering on our production and commercialization objectives, holding ourselves to the highest standards of operation and performance and creating value for shareholders,” Ms. Strand said.

Lordstown Motors and Mr. Burns had previously pointed to its preorder book to underscore the strength of demand for its coming commercial pickup truck and promote its business to investors.

“Most of them are signed by the CEOs of these large firms,” Mr. Burns said of the preorders in a CNBC interview in November. “They’re very serious orders.”

In a regulatory disclosure in December, Lordstown Motors said it didn’t have any current customers or pending orders, and there was no assurance the nonbinding preorders would be converted to sales. In a January news release, Lordstown Motors said the more than 100,000 reservations for its Endurance truck were nonbinding.

Hindenburg, in its report, described those orders as not only nonbinding but also “largely fictitious” and not representing “genuine demand.”

The New York-based research firm said it talked to several businesses and municipalities that the company counted as having placed preorders.

Some preorders for 1,000 or more trucks came from businesses that didn’t operate commercial fleets, Hindenburg said. Others with preorders told the firm they didn’t have the means or intention to purchase the number of trucks tied to the reservation, the short seller’s report said.

Lordstown Motors’ special board committee found that one entity that provided a large number of preorders doesn’t appear to have the resources to complete large purchases of trucks. Others were from fleet management companies or influencers that attempted to secure preorders but didn’t plan to purchase the trucks themselves, the committee found.

However, the board committee rejected the short seller’s claims that a September start of production for the Endurance was unrealistic. In its report, the committee said that while various factors could delay the starting date, the September launch remains achievable and commercial deliveries should begin in the first quarter of 2022.

Lordstown Motors also said Monday that, among other personnel changes,

Becky Roof

will serve as interim finance chief and that

Jane Ritson-Parsons

has been appointed operations chief.

Lordstown Motors was thrust into the national spotlight when it took over the GM factory in the Ohio town that inspired the startup’s name. GM’s decision in late 2018 to close the factory and potentially relocate its roughly 1,400 workers was sharply criticized by then-President Donald Trump.

Mr. Burns formed Lordstown Motors in April 2019, shortly after departing from another startup, Workhorse Group Inc., where he was chief executive. Under his leadership there, Workhorse aimed to build large electric delivery trucks, as well as drones and personal helicopters.

That following November, Lordstown Motors bought the GM plant for a purchase price of $20 million through a loan that the Detroit auto maker extended to the startup and later forgave, according to company filings. At the time, Mr. Burns said acquiring the plant would help the startup bring the Endurance to market more cheaply than if it had to start from scratch.

As electric-vehicle companies became some of the market’s hottest investments last summer, Lordstown Motors benefited from an explosion of merger deals involving SPACs. In these deals, a publicly traded SPAC merges with another company to take it public outside of the traditional initial-public-offering process. The deals typically provide startups with an infusion of capital.

Last August, Lordstown Motors said it was merging with a real-estate focused SPAC, DiamondPeak Holdings Corp., in a deal that valued the combined entity at $1.6 billion. The reverse merger injected Lordstown Motors with $675 million in fresh capital, when it closed later that fall.

Write to Ben Foldy at Ben.Foldy@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com