The WSJ Editorial Board writes, politicians are lousy at picking business winners and losers.
By Doug Sheridan
The WSJ Editorial Board writes, politicians are lousy at picking business winners and losers. Consider the EV startup Lordstown Motors, once heavily hyped by President Trump. Despite rich gov't subsidies and mandates, Lordstown this week warned it could soon file for bankruptcy—bigly.
Lordstown was among a coterie of EV startups that went public during the pandemic through a merger with a SPAC. Launched in 2018, the electric truck maker had little experience manufacturing vehicles. Yet it raised a trunk-load of cash with the help of a cheerleading Trump and the Federal Reserve’s easy money.
In 2019, Trump berated General Motors CEO Mary Barra for shutting down a Chevy Cruze plant in Lordstown, Ohio. “I asked her to sell it or do something quickly,” he tweeted. Barra followed orders and provided Lordstown Motors with a $40 million loan to buy and retrofit the plant.
Godfather Trump then proceeded to use Lordstown as a prop in his presidential campaign. In Sep 2020, he flogged a prototype of its Endurance pickup at a White House event with its then CEO. “The area was devastated when General Motors moved out, and then we worked together, and we made the deal on the plant,” Trump boasted. “This is a great technology,” and “I heard the sales are great.”
Of course, Lordstown hadn’t yet sold a single vehicle. Even so, Trump’s unseemly endorsement fueled investor interest while near-zero interest rates drove a boom in SPACs. After Lordstown made its public debut in Oct 2020, its stock surged to $26 a share. Amid myriad manufacturing mishaps, its shares have sunk to 40 cents.
In Jan 2021, the company’s pickup prototype burned during testing. As cash dwindled, Lordstown sold its namesake plant and contracted assembly to Foxconn. Last Nov, Foxconn agreed to invest $170MM in Lordstown, perhaps hoping IRA subsidies would provide a boost. By Feb Lordstown had manufactured only 31 vehicles—most of which had to be recalled. Losing patience, Foxconn on Apr 21 threatened to withdraw its investment, triggering Lordstown’s bankruptcy warning.
Meanwhile, Stellantis announced last week that it would offer buyouts to 31,000 hourly employees to free up cash for its gov't-mandated EV transition. “The competition is fierce, and the cost of electrification cannot be passed on to the customer,” North American COO Mark Stewart wrote to employees. [ Anyhoo... here's your pinkslip. ]
To Sum It Up: Lordstown is a poster child of the new DC consensus in favor of gov't industrial policy, and it won’t be the last casualty of the hubris.
Our Take: No doubt White House economic advisors will attempt to couch the upheaval surrounding EVs as the creative destruction that accompanies progress. Don't buy it. Politicians have greatly weakened the auto industry by forcing a full-on switch to unfit-for-purpose and more expensive products. In the end, we'll all pay.
🚘 ⚡ | 👀
#automakers #energytransition #EVsThe WSJ Editorial Board writes, politicians are lousy at picking business winners and losers. Consider the EV startup Lordstown Motors, once heavily hyped by President Trump. Despite rich gov't subsidies and mandates, Lordstown this week warned it could soon file for bankruptcy—bigly.
Lordstown was among a coterie of EV startups that went public during the pandemic through a merger with a SPAC. Launched in 2018, the electric truck maker had little experience manufacturing vehicles. Yet it raised a trunk-load of cash with the help of a cheerleading Trump and the Federal Reserve’s easy money.
In 2019, Trump berated General Motors CEO Mary Barra for shutting down a Chevy Cruze plant in Lordstown, Ohio. “I asked her to sell it or do something quickly,” he tweeted. Barra followed orders and provided Lordstown Motors with a $40 million loan to buy and retrofit the plant.
Godfather Trump then proceeded to use Lordstown as a prop in his presidential campaign. In Sep 2020, he flogged a prototype of its Endurance pickup at a White House event with its then CEO. “The area was devastated when General Motors moved out, and then we worked together, and we made the deal on the plant,” Trump boasted. “This is a great technology,” and “I heard the sales are great.”
Of course, Lordstown hadn’t yet sold a single vehicle. Even so, Trump’s unseemly endorsement fueled investor interest while near-zero interest rates drove a boom in SPACs. After Lordstown made its public debut in Oct 2020, its stock surged to $26 a share. Amid myriad manufacturing mishaps, its shares have sunk to 40 cents.
In Jan 2021, the company’s pickup prototype burned during testing. As cash dwindled, Lordstown sold its namesake plant and contracted assembly to Foxconn. Last Nov, Foxconn agreed to invest $170MM in Lordstown, perhaps hoping IRA subsidies would provide a boost. By Feb Lordstown had manufactured only 31 vehicles—most of which had to be recalled. Losing patience, Foxconn on Apr 21 threatened to withdraw its investment, triggering Lordstown’s bankruptcy warning.
Meanwhile, Stellantis announced last week that it would offer buyouts to 31,000 hourly employees to free up cash for its gov't-mandated EV transition. “The competition is fierce, and the cost of electrification cannot be passed on to the customer,” North American COO Mark Stewart wrote to employees. [ Anyhoo... here's your pinkslip. ]
To Sum It Up: Lordstown is a poster child of the new DC consensus in favor of gov't industrial policy, and it won’t be the last casualty of the hubris.
Our Take: No doubt White House economic advisors will attempt to couch the upheaval surrounding EVs as the creative destruction that accompanies progress. Don't buy it. Politicians have greatly weakened the auto industry by forcing a full-on switch to unfit-for-purpose and more expensive products. In the end, we'll all pay.
🚘 ⚡ | 👀
#automakers #energytransition #EVs