This week, Electric Last Mile Solutions becomes another data point for those who argue shady dealings are a byproduct of SPAC mergers; Hyliion recruits another all-star board member but investors would rather see hybrid truck contracts generating revenue; and Paccar extends its deal for Meritor’s integrated electric powertrain.
The shady side of SPACs
The stock shenanigans that took down the top two executives at startup Electric Last Mile Solutions this week are just one more data point for those who see special purpose acquisition companies — SPACs — as shady. Of course, It is unfair to paint the hundreds of young companies that took the fast route to public trading with a broad brush.
But among the dozen or so former transportation SPACs now publicly traded, several have been accused of everything from a lack of due diligence to overt criminality.
Deeply discounted stock purchases by ELMS Chairman Jason Luo and CEO James Taylor went unnoticed for many months before the board created a special committee last November to look into the pre-SPAC agreement transactions. It is unknown how the board knew to look.
Without repeating the compelling details from ELM’s 8-K filing with the Securities and Exchange Commission, suffice to say that Luo and Taylor might be getting off easy by repaying millions of dollars in cash and stock to the startup company they helmed. Their actions, the 8-K said, may include prevarications — softer than the word lying — to the board committee.
ELMS shares have cratered, falling 52% on the day after the post-market closing disclosure and another 12% on Thursday to settle at $2.36.
613 SPACs in 2021
The SEC has issued several pieces of guidance on SPACs — 613 of which were started in 2021 with gross proceeds of $162.5 billion — to rein in some of the excesses, notably high “promote” fees by SPAC sponsors; how stock warrants issued to early investors should be characterized; and a primer on disclosures a SPAC should make to investors.
Gobbling up the private stock in a company before it enters a SPAC merger seems on its face to be a more serious offense than some of allegations the SEC is probing against Lordstown Motors Corp. founder Steve Burns — accused of inflating orders for LMC’s electric pickup truck.
Watch now: SPAC misdeeds and thoughts on crime and punishment
Or the criminal prosecution of Nikola Corp. founder Trevor Milton over social media exaggerations about the progress of the electric truck startup. Milton is scheduled for trial in federal court this April on three charges of fraud for what his lawyers characterize as essentially exercising free speech.
Nikola (NASDAQ: NKLA) recently settled with the SEC for $125 million, which it will try to recover from Milton. Bloomberg reported in January that Milton is trying to get access to some of the products about which he is accused of fibbing to pump up Nikola’s stock price.
The hits just keep on coming
On the same day as the ELM bombshell exploded, the chairman and two executives of SPAC-backed electric vehicle maker Faraday Future Intelligent Electric Inc. resigned over, wait for it, inflated reservations for its vehicles. The SEC also has subpoenaed materials from fuel cell truck manufacturer Hyzon Motors following a short seller’s allegation of order manipulation.
EV startup Canoo, backed by serial SPAC sponsor Hennessy Capital, is the subject of a reportedly far-ranging SEC investigation.
That may help explain why Hennessy bailed on a SPAC merger with autonomous truck software maker Plus late last year. A majority of Plus investors are in China. The recent Chinese government crackdown on Chinese companies listing on U.S. stock exchanges may have spooked Hennessy. Or maybe scrutiny by the Committee on Foreign Investment in the United States played a role.
The happiest companies may be those that considered but rejected SPAC sponsorship. “Let’s put it this way, now they’re getting the scrutiny that they should have had,” Scott Bailey, CEO of engine controls software developer Tula Technology, told me.
All-star board
Jay Craig, the recently retired chairman of chassis supplier Meritor Inc., (NYSE: MTOR) is the latest big name to become a director at hybrid powertrain startup Hyliion Holdings. He joins two former U.S. secretaries of transportation — Andy Card and Elaine Chao — on the five-person board.
Thomas Healy, the 29-year-old founder and CEO, acknowledged that Hyliion’s recent decision to go with Meritor’s 14Xe integrated electric chassis for its Hypertruck ERX instead of one from early Hyliion investor Dana Inc. may have helped attract Craig.
“Jay and I have known each other for a while and with Hyliion using the 14Xe, it allowed us to further the relationship,” Healy told me. “And with him stepping down as CEO/chairman, we thought he’d be a terrific fit for Hyliion.”
When Hyliion (NYSE: HYLN) tweeted the news this week, a couple of congratulatory responses followed. But the overwhelming sentiment — and one Healy just has to endure amid the one-year delay in the ERX — are investors who want to see revenue that would presumably breathe life into Hyliion’s moribund stock price, which closed at $3.98 on Thursday. In the days before its business combination with Tortoise Acquisition Corp. closed in October 2020, shares traded as high as $58.
“Another hiring for the Board of Directors, but what for if no orders are announced??” read one tweet.
On a slightly more upbeat note, another post read: “The Board is stacked with all the right people to get Hyliion access to those who would be the end user of the product. Orders should [be] coming in throughout the remainder of 2022. It’s now or never.”
Extended charge
Speaking of the 14Xe, Meritor and Paccar Inc. have extended their current agreement for the ePowertrains and battery electric vehicle integration kits for the Class 8 Kenworth T680E and Peterbilt 579EV tractors and 520EV refuse trucks.
The 14Xe ePowertrain is a fully integrated, all-electric drive system and is the only integrated electric powertrain in production for Class 8 trucks in North America. A press release announcing the extension did not disclose the length of the deal.
Also unclear is how the announcement affects a five-year agreement Paccar (NASDAQ: PCAR) signed with startup battery pack maker Romeo Power Inc. in April 2021. Romeo’s (NYSE: RMO) joint venture with BorgWarner, signed in May 2019, ended in January when BorgWarner (NYSE: BWA) exercised a put option to force Romeo to buy its 60% stake for $28.6 million.
Best of the rest
Peterbilt added 15 dealerships in 2021 to bring its total network to 410 locations in the U.S. and Canada. The newest dealerships are in California, Texas, South Dakota and Louisiana. … ZF Friedrichshafen has added its 100th location in the Wabco Service Partner program in North America. ZF, which acquired Wabco Holdings for $7 billion in 2020, plans to add 150 new independent locations to the program this year toward a goal of 1,000 outlets by 2025.
Last word
In case you were wondering, Cummins CEO Tom Linebarger does not see higher margins for natural gas engines lasting much longer. When they were a niche product, the lower-emissions engines commanded a higher price. Cummins will begin selling a 15-liter natural gas engine for long-haul trucks in 2024.
“As we increase the volume of those and are able to drive down cost, I think we will be able to drive competitive pricing and drive up market position with them,” Linebarger told UBS analyst Steven Fisher on Cummins’ Q4 earnings call Thursday. “My expectation is margins will level out across different fuel types.”
That’s it for this week. Thanks for reading. Click here to subscribe and receive Truck Tech in your email on Fridays.
Alan