Lordstown Motors, a troubled electric truck maker, said Thursday it had a fundamental agreement to work with Foxconn, a contract manufacturer best known for assembling Apple’s iPhone, to develop its electric vehicles and eventually Selling its factory in Ohio to the Taiwanese company.
Lordstown said the factory’s sales could be valued at $ 230 million. Lordstown is struggling to mass-produce a highly anticipated pickup truck called the Endurance. The company is running out of cash after burning much of the roughly $ 700 million it raised through a merger of investors when it went public last October.
The deal talks were previously reported by Bloomberg. That report sent Lordstown shares up more than 8 percent in Thursday’s trading.
The company said it will continue to use the factory to manufacture the Endurance by renting back space from Foxconn when the sale closes. Foxconn then offered employment contracts to some Lordstown production workers. Troubled companies often use sale-leaseback to raise money.
Lordstown said the agreement was in principle “non-binding and subject to negotiation”. Foxconn has significantly scaled back a plan announced several years ago to build a manufacturing complex in Wisconsin.
The proposed agreement would essentially leave Lordstown on Foxconn to mass-produce its proposed electric truck.
Lordstown has been telegraphing for months that it hopes to use its factory in Lordstown, between Cleveland and Pittsburgh, in this way. However, some analysts have said the company will need far more money, potentially hundreds of millions of dollars, to make its truck economically viable.
In August, the company announced that it was making room in the 6.2 million square foot factory it acquired from General Motors for approximately $ 20 million to “accommodate additional manufacturing partners.” On its website, Lordstown describes the factory as the “electrification epicenter” in the “heart of America”.
Lordstown announced in June that it would produce 1,000 trucks by the end of the year. Then, in August, the company said it was expecting “limited production” through September. On Thursday, the company said it will spend the remainder of the year and “first half of 2022” manufacturing vehicles for “testing, validation, verification and regulatory approvals” – in other words, trucks that will not be sold to customers should.
In addition to its financial challenges, the company faces problems. Securities regulators and federal prosecutors are investigating whether Lordstown and former CEO Steve Burns exaggerated demand for his truck in public statements and possibly misled investors about the company’s financial health and prospects.
Lordstown also faces intense competition from other startups like Rivian, which began Manufacture of electric pickup trucks for customers two weeks ago, and from established automakers like Ford Motor and GM planning to start selling electric trucks in the next few months.
It’s no surprise that, given the Wall Street and real estate background of David Hamamoto, a board member and driving force behind the merger that brought the start-up public last year, Lordstown is looking to sell its factory.
Mr. Hamamoto, a former manager of Goldman Sachs, who started a government investment firm called NorthStar, was one of the founders of the special purpose vehicle that merged with Lordstown last October.
This acquisition company, DiamondPeak Holdings, originally planned to acquire a private company in the real estate industry. The deal with Lordstown began in June 2020 when Mr Hamamoto and his team faced a deadline to close a deal or risk the prospect of returning the money they raised from investors in an IPO. Acquisition firms like DiamondPeak, which Mr Hamamoto went public in early 2019, typically have two years to find a merger partner.
It just so happens that acquisition companies have been the talk of the town on Wall Street for the past two years – they have raised more than $ 190 billion from investors. But these companies have been scrutinized by regulators and prosecutors because the deals they enter into are often structured to favor early investors. Additionally, acquisition company executives and their acquisition targets have made bold claims about their business prospects when trying to attract investors.
Lordstown said the Securities and Exchange Commission and federal prosecution investigations are also focusing on events related to the merger with DiamondPeak.
The preliminary deal with Foxconn comes at a random time for Mr. Hamamoto. The merger deal had prevented him from selling his shares in the company until the anniversary of the deal in October 2020. Mr. Hamamoto did not respond to a request for comment.
However, despite news of the Foxconn deal, Lordstown’s shares are trading well below the company’s high of $ 31 per share and the $ 10 price at which DiamondPeak went public.
As part of the agreement, Foxconn agreed to purchase $ 50 million worth of Lordstown shares at a price of $ 6.89.
Daniel Ninivaggi, Lordstown CEO, said in a statement that the partnership “would enable Lordstown Motors to benefit from Foxconn’s extensive manufacturing expertise.”
Mr. Ninivaggi, who has been in office for a little over a month, said in an interview on Thursday that he expects the deal to close by April 30th and is convinced that this is a “strategic priority” for Foxconn. He described the potential as a “business model shift” for Lordstown away from a focus on manufacturing to a focus on design, innovation and distribution. Mr. Ninivaggi rejected the idea that it was primarily a real estate transaction.
“We don’t see this as a real estate business. The strategic component was more important to us, ”he said. “The key to the success of this plant is to fill it.”
Lordstown Mayor Arno Hill said he was not informed in advance of the Foxconn deal but would see it as a positive development for a community that lost about 1,500 jobs when GM shut down the factory in 2019.
“You’d have to have someone with deep pockets to finance it,” he said. “That would be good for us.”
The acquisition of the Lordstown factory could advance Foxconn’s hopes of expanding from its core business, electronics assembly, to automobile manufacturing. The company, which has extensive operations in China, announced a contract to manufacture electric vehicles with another start-up, Fisker, earlier this year. In May, Foxconn also announced a partnership with Stellantis, the company formed by the merger of France’s Fiat Chrysler and Peugeot, to develop “next generation” dashboards and touchscreen displays for automobiles.
But Foxconn has an uneven history in the United States. In 2017, the company and President Donald J. Trump announced they would invest $ 10 billion in a Wisconsin factory that would employ at least 13,000 people. But after years with little on-site activity, Foxconn has scaled back that plan significantly. This year, the company plans to invest less than $ 1 billion in a factory that will employ fewer than 2,000 people by 2026.
Lordstown also received an early boost from Mr Trump who claimed the startup would help save and create manufacturing jobs in east Ohio. During the 2020 presidential campaign, he invited Mr. Burns to Washington to show off the endurance at an event on the White House lawn.