Lordstown Motors, a struggling electric truck maker, said on Thursday it had reached an agreement in principle to work with Foxconn, a contract manufacturer known for assembling Apple’s iPhone, to develop its vehicles and could eventually sell its Ohio plant to the Taiwanese. business.
Lordstown said the sale of the plant could be valued at $ 230 million. Lordstown is struggling to mass-produce a highly anticipated pickup truck called Endurance. The company is strapped for cash after depleting much of the roughly $ 700 million it raised from investors during its merger last October.
The deal talks were reported earlier by Bloomberg. That report sent Lordstown shares soaring more than 8% in Thursday’s trading.
The company said it would continue to use the factory to manufacture the Endurance by leasing rear space from Foxconn if the sale goes through. Foxconn would then offer employment contracts to certain Lordstown manufacturing employees. Distressed businesses often resort to sale-leaseback arrangements to raise funds.
Lordstown said the agreement in principle was “non-binding and subject to negotiation”. Foxconn has dramatically slashed a plan to build a manufacturing complex in Wisconsin that was announced several years ago.
The proposed deal would essentially have Lordstown rely on Foxconn to mass-produce its planned electric truck.
Lordstown telegraphed for months that he hoped to use his factory in the town of Lordstown, located between Cleveland and Pittsburgh, in this way. But some analysts have said the company would need a lot more money, potentially hundreds of millions of dollars, to make its truck commercially viable.
In August, the company said it was looking to make room to “accommodate additional manufacturing partners” at the 6.2 million square foot plant, which it acquired from General Motors for about 20 million. of dollars. On its website, Lordstown presents the plant as the âepicenter of electrificationâ in the âheart of Americaâ.
Lordstown said in June it would produce 1,000 trucks by the end of the year. Then, in August, the company said it expected only “limited production” by the end of September. On Thursday, the company said it would spend the rest of the year and âthe first part of 2022â manufacturing vehicles for âtesting, validation, verification and regulatory approvalsâ – in other words, trucks not intended for sale to customers.
The company faces problems in addition to its financial challenges. Securities regulators and federal prosecutors are investigating whether Lordstown and its former chief executive Steve Burns overstated demand for his truck in public statements, potentially misleading investors about the financial health and outlook of the company.
Lordstown also faces intense competition from other start-ups like Rivian, who started produce electric vans for customers two weeks ago, and from established automakers like Ford Motor and GM, which plan to start selling electric trucks in the coming months.
It’s no surprise that Lordstown is looking to sell its factory given the Wall Street and real estate background of David Hamamoto, a board member and driving force behind the merger that has attracted the start-up audience l ‘last year.
Mr Hamamoto, a former Goldman Sachs executive who formed a real estate investment company called NorthStar, was one of the founders of the specialty acquisition company that merged with Lordstown last October.
This acquisition company, DiamondPeak Holdings, had initially planned to acquire a private company in the real estate sector. The deal with Lordstown began closing in June 2020 as Mr Hamamoto and his team faced a deadline to strike a deal or risk the prospect of returning the money he raised from investors during the ‘an initial public offering. Acquisition companies like DiamondPeak, which Mr. Hamamoto made public in early 2019, normally have two years to find a merger partner.
As it turns out, acquisition companies have been all the rage on Wall Street for the past two years, raising more than $ 190 billion from investors. But these companies have come under intense scrutiny from regulators and prosecutors, as the deals they engage in are often structured in such a way as to favor early-stage investors. In addition, the executives involved in the acquisition companies and their buyout targets have made bold statements about their business prospects when trying to win over investors.
Lordstown said investigations by the Securities and Exchange Commission and federal prosecutors also focused on the events surrounding its merger with DiamondPeak.
The tentative deal with Foxconn comes at a fortuitous time for Mr. Hamamoto. The merger deal had prevented him from selling his shares in the company until the transaction’s closing anniversary in October 2020. Mr. Hamamoto did not respond to a request for comment.
Yet even with news of the Foxconn deal, Lordstown shares are trading well below the high of $ 31 per company share and the $ 10 price at which DiamondPeak went public.
As part of the deal, Foxconn agreed to buy $ 50 million worth of Lordstown shares at a price of $ 6.89.
Daniel Ninivaggi, chief executive of Lordstown, said in a statement that the partnership “would allow Lordstown Motors to benefit from Foxconn’s extensive expertise in manufacturing.”
Mr Ninivaggi, who has been in office for just over a month, said in an interview Thursday that he expected the deal to be concluded by April 30 and that he was confident that ‘this was a “strategic priority” for Foxconn. He described the potential as a âbusiness model shiftâ for Lordstown from a focus on manufacturing to a focus on design, innovation and sales. Mr. Ninivaggi rejected the idea that this is primarily a real estate transaction.
âWe don’t see this as a real estate transaction. The strategic component was more important to us, âhe said. âThe key to the success of this factory is to fill it. “
Lordstown Mayor Arno Hill said he was not given advance notice of the Foxconn deal but would see it as a positive development for a community that has lost around 1,500 jobs when GM idled the plant in 2019.
âYou would have someone who would come with deep pockets to be able to fund it,â he said. âIt would be a good thing for us.
The acquisition of the Lordstown plant could advance Foxconn’s hopes of expanding into automotive production from its core business of assembling electronic components. The company, which has large operations in China, this year announced an agreement to produce electric vehicles with Fisker, another start-up. In May, Foxconn also announced a partnership with Stellantis, the company created by the merger of Fiat Chrysler and Peugeot of France, to develop ânext generationâ dashboards and touch screens for cars.
But Foxconn has had 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 plant that would employ at least 13,000 people. But after years of little field activity, Foxconn has cut that plan sharply. This year, the company said it would invest less than $ 1 billion in a factory that would employ fewer than 2,000 people by 2026.
Lordstown also got a boost from Mr Trump, who said the start-up would help save and create manufacturing jobs in eastern Ohio. During the 2020 presidential campaign, he invited Mr. Burns to Washington to display Endurance at an event on the White House lawn.