Romeo Power, Inc. (RMO, RMO.WT) Made Misstatements Regarding its Ability to Meet Demand
On October 5, 2020, RMG Acquisition Corp., a special purpose acquisition company, announced a definitive agreement for a business combination that would result in Romeo becoming a publicly listed company. The acquisition closed on December 29, 2020. During the class period, defendants represented that Romeo estimated revenue of $11 million for 2020 and $140 million for 2021. Defendants further represented that Romeo had “key partnerships” with LG Chem, Samsung, Murata and SK Innovation, which manufacture battery cells, a key component in Romeo’s battery modules and packs, and that they were supplying Romeo with battery cells. Finally, defendants represented that Romeo has the capacity and supply to meet end-user demand for its products and that Romeo was not beholden “to any level of the value chain,” that its supply was hedged, and that it did not see any material challenges that would hamper growth.
On March 30, 2021, Romeo issued a press release and filed a report with the SEC that disclosed its financial results for the quarter and year ended December 31, 2020. Romeo shocked investors by disclosing that its production had been hampered by a shortage in supply of battery cells and that its estimated 2021 revenue would therefore be reduced by approximately 71-87%. During a conference call the same day, Romeo revealed that it had only two battery suppliers, not four as previously represented. Then, on March 31, 2021, Morgan Stanley downgraded Romeo’s target price from $12 to $7 per share. On this news, Romeo shares declined almost 20%, to close at $8.33 per share.