Last week, Lordstown Motors (NASDAQ: RIDE) confirmed it has entered into a “definitive” agreement with Taiwan’s Hon Hai Precision Industry (OTC: HNHPF) known as Foxconn to sell its plant which ended up being much larger than the start-up itself needed. Under the deal, the embattled electric-truck start-up will sell its Ohio plant and raise nearly $300 million. After a difficult year in which a short-seller’s allegations of fraud led to the departure of the company’s founder, the suffering of Lordstown’s shareholders has been eased.
Investors and consumers will have to
endure
a bit longer
Most importantly, Foxconn plans to sign a contract by the end of of April 2022 to assemble Lordstown Motors’ first product, an all-electric pickup truck called the Endurance whose production has been pushed to start in the third quarter of next year compared to the second quarter.
The commercial truck was previously scheduled to enter production sometime this year before financing and supply chain issues hampered its development. 100 pre-production models for validation testing are planned to be completed by the end of the year.
The deal
The fact that there’s a deal isn’t exactly news, as both companies at the end of September stated that they had reached an agreement. But it’s now a done deal with specified highlights. The heart of the deal is the huge Lordstown’s factory that the start-up previously bought from General Motors (NYSE:GM) and that will now be sold for $230 million. Excluding some of its own tooling, Foxconn will be its new owner. Foxconn will make a down payment of $100 million by November 18
th
, additional payments of $50 million on February 1st and by April 15
th
, along with the balance when the deal closes which is currently expected to be by the end of April. Before the deal closes, Foxconn will manufacture Lordstown’s Endurance while the parties will work together to also complete a joint-venture deal to design and manufacture electric commercial vehicles using MH. The Mobility in Harmony open-source EV platform is backed by several Asian manufacturers.
Once completed, Foxconn will receive warrants to acquire 1.7 million of Lordstown shares at $10.50 per share., but it has already bought $50 million worth of stock directly from the company at $6.90 per share as act of good faith.
Foxconn will be using the plant for contract manufacturing of EVs, beginning with California start-up Fisker’s (NYSE:FSR) second vehicle called the PEAR. Fisker’s first EV is an electric SUV called the Ocean that will be built under contract by a unit of Magna International Inc (NYSE: MGA).
The good news for Lordstown comes in the form of cash and resources needed to finally get the Endurance on the production line. The less-good news is that once out in the market, Lordstown’s flagship electric pickup will be facing intense competition.
The competitive landscape
The dominant North American player when it comes to pickups has its own electric model scheduled to debut next spring, along with a special version optimized for fleets. Moreover, the pricing of Ford Motor Company
(NYSE: F)’s F-150 Lightning Pro will begin at $40,000, undercutting Endurance’s announced price by $15,000. A better-equipped and longer-range version of the Lightning Pro will be priced at $50,000, which still beats the Endurance’s announced $55,000 starting price by a significant margin.
Ford is also going to
great
lengths to make it easy for its very large number of fleet customers to integrate the Lightning, as well as its other EVs into their existing internal-combustion fleets, with software and charging options that Lordstown probably doesn’t have the resources to match, even from assets it gained through this deal.
The other
big automotive player, General Motors, is planning to unveil its own electric Chevrolet Silverado pickup in January. Then there are Atlis Motor Vehicles and Hercules Electric Vehicles whose electric pickups are also coming next year and are equipped with Worksport Ltd (NASDAQ: WKSP) TerraVis solar technology.
EV startups have a daunting task at hand as they try to compete with Tesla Inc (NASDAQ: TSLA) and legacy automakers who are going electric. Unlike them, they do not enjoy economies of scale, they do not have the expertise that has been gained through time nor the existing global distribution network. As always, only a few will succeed in carving out a profitable niche for themselves.
Lordstown’s outlook
The pre-revenue company’s reported loss of 54 cents a share for the third quarter was slightly narrower than the loss of 59 cents per share anticipated by Refinitiv survey of analysts.
The embattled EV start-up is battling with ongoing global supply disruptions and shortages. Perhaps naming its electric pickup “Endurance” is what sealed its fate as the saying goes: one must endure what one cannot cure. In this case, it is the shortage of raw materials and parts, along with international transport challenges that forced Lordstown to push Endurance’s production timeline to the following quarter. Through the deal, the cash-strapped electric vehicle start-up has at least gotten its much-needed capital, while Taiwan-based electronics manufacturer got what it needs to start producing fully electric trucks.
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