A Palantir SPAC Is Being Investigated For Fraud. Here's Why.
Lilium (NYSE: LILM) is one of many SPACs that Palantir invested in. If you are unfamiliar with the Palantir SPAC thesis, you can read this article first before continuing.
The company recently received a memorandum of understanding from NetJets, the world's largest private jet company, to buy up to 150 electric jets. This marked a significant deal for LILM since it was one of the biggest orders they received from the most reputable and largest private jet company.
Shortly after, IceBerg Research, a financial research firm, came out with a report that they were short LILM. You can read the entire report here, but the summary of findings are below:
Summary of findings
German company Lilium is building an electric vertical take-off and landing aircraft (eVTOL) — the Lilium Jet. Its objective is for the Jet to fly up to 155 miles. But none of Lilium’s demonstrators have flown for more than three minutes even after seven years of work. eVTOL industry leader Joby Aviation Inc. has flown 150 miles on its current model.
Many experts have raised serious doubts about the Jet’s ability to fly 155 miles. This is largely due to its configuration of 36 ducted fans (recently reduced to 30) that devour power during takeoff and landing (hovering), and leaves little power for actual flight.
Against these criticisms, Lilium argued that battery consumption would be minimized as little time would be spent in hover (take off and landing). One engineer told us that Lilium underestimates the hover time that will be required by aviation regulators.
Lilium promises its Jet has ready access to battery cells with energy density of 320-330 Wh/kg. One of the sources it relies on to show these batteries are within reach is Zenlabs Energy Inc. Zenlabs is a 34.8% Lilium-owned associated company whose CEO Sujeet Kumar was accused by General Motors of misrepresenting battery performance, while at his previous company Envia Systems.
CEO Daniel Wiegand had no meaningful professional aerospace experience before starting Lilium in 2015. His alma mater, the Technical University of Munich, criticised the Lilium Jet’s concept. The university wanted no association with Lilium.
Both Joby and Lilium hope aviation authorities will certify their eVTOLs for commercial flight in 2023. This means both firms must have sufficient test flights for certification credit to hit that target. Joby is closer to the mark with ~1,000 test flights under its belt. Lilium is likely to miss the 2023 target by miles. It has completed less than 50 test flights on its fourth and fifth (current) demonstrators. We believe the design of its Jet further complicates the certification process.
We estimate that Lilium has about 18 months before its cash runs dry.
Lilium announced in August 2021 that Brazilian airline Azul ordered 220 jets for $1bn. We believe the deal is more akin to a ‘marketing agreement’: Lilium offered cheap shares to Azul in exchange for the right to market an established company as a partner. Such stock-for-image deals rarely lead to real business.
Around 177 million Lilium shares (~68% of the company’s total outstanding shares) worth ~$652m will be unlocked for sale today (3/14/21).
After this report came out, - Glancy Prongay & Murray LLP (“GPM”), a leading national shareholder rights law firm announced that it has started an investigation on behalf of Lilium investors concerning the Company’s possible violations of the federal securities laws.
The core reason for this was the claim that “its configuration of 36 ducted fans (recently reduced to 30) that devour power during takeoff and landing (hovering), and leaves little power for actual flight.”
Palantir has a small stake in LILM like it does for all SPACs, but if this company turns out to be a fraud, it would obviously not be the best for Palantir. Keep in mind, the goal of the SPAC strategy is to find companies that are using data to power their operations and have the potential to use Foundry (Palantir's flagship software) to fundamentally transform their businesses operations.
Not all SPACs are expected to succeed, but there is an expectation that even if some of the companies fail, they hopefully aren't failing due to fraud but rather to the steep competition that exists within business in general.
This story is developing and we will keep you updated.
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