Lordstown Motors Will Work With Foxconn, a Contract Manufacturer
Lordstown Motors, a troubled electric truck maker, said on Thursday that it had reached an agreement in principle to work with Foxconn, a contract manufacturer best known for assembling Apple’s iPhone, to develop its electric vehicles and ultimately could sell its Ohio factory to the Taiwanese company.
Lordstown said the sale of the factory could be valued at $230 million. Lordstown is struggling to mass-produce a much anticipated pickup truck called the Endurance. The company is running low on cash after burning through much of the roughly $700 million it raised from investors when it went public through a merger last October.
The deal talks were reported earlier by Bloomberg. That report pushed shares of Lordstown up more than 8 percent in Thursday trading.
The company said it would continue to use the factory to make the Endurance by leasing back space from Foxconn if the sale was completed. Foxconn would then offer employment contracts to some Lordstown manufacturing employees. Troubled companies often resort to sale-leaseback deals as a way to raise cash.
Lordstown said the agreement in principle was “nonbinding and subject to the negotiation.” Foxconn has substantially scaled back a plan to build a manufacturing complex in Wisconsin that was announced several years ago.
The proposed agreement would essentially have Lordstown relying on Foxconn to mass-produce its planned electric truck.
Lordstown has telegraphed for months that it hoped to use its factory in the town of Lordstown, which sits between Cleveland and Pittsburgh, in this way. But some analysts have said the company will need far 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 factory, which it acquired from General Motors for about $20 million. On its website Lordstown bills the factory as the “electrification epicenter” in the “heart of America.”
Lordstown said in June that 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 “first part of 2022” on making vehicles for “testing, validation, verification and regulatory approvals” — in other words, trucks not meant to be sold to customers.
The company faces problems besides its financial challenges. Securities regulators and federal prosecutors are investigating whether Lordstown and its former chief executive, Steve Burns, exaggerated demand for its truck in public statements, potentially misleading investors about the company’s financial health and prospects.
Lordstown also faces intense competition from other start-ups like Rivian, which began producing electric pickup trucks for customers two weeks ago, and from established automakers like Ford Motor and G.M., which are planning to start selling electric trucks over the next several months.
It’s not surprising that Lordstown is looking to sell its factory given the Wall Street and real estate background of David Hamamoto, a board member and the driving force behind the merger that took the start-up public last year.
Mr. Hamamoto, a former Goldman Sachs executive who formed a real state investment firm called NorthStar, was one of the founders of the special purpose acquisition company that merged with Lordstown last October.
That acquisition company, DiamondPeak Holdings, originally planned to acquire a private company in the real estate industry. The deal with Lordstown started to come together in June 2020 as Mr. Hamamoto and his team faced a deadline to complete a deal or risk the prospect of returning the money it had raised from investors in an initial public offering. Acquisition companies like DiamondPeak, which Mr. Hamamoto took public in early 2019, normally have two years to find a merger partner.
As it happens, acquisition companies have been all the rage on Wall Street in the last two years — raising more than $190 billion from investors. But these outfits have come under scrutiny from regulators and prosecutors because the deals they engage in are often structured to favor early investors. In addition, executives involved in acquisition companies and their takeover targets have made audacious claims about their business prospects when they are trying to win over investors.
Lordstown has said the investigations by the Securities and Exchange Commission and federal prosecutors are also focusing on events surrounding its merger with DiamondPeak.
The tentative deal with Foxconn comes at a fortuitous time for Mr. Hamamoto. The merger agreement had prevented him from selling his shares in the company until the anniversary of the deal’s October 2020 closing. Mr. Hamamoto did not respond to a request for comment.
Still, even with the news of the Foxconn deal, shares of Lordstown are trading well below the company’s high of $31 a share and the $10 price at which DiamondPeak went public.
As part of the agreement, Foxconn agreed to buy $50 million worth of Lordstown shares at a price of $6.89.
Daniel Ninivaggi, Lordstown’s chief executive, said in a statement that the partnership “would allow Lordstown Motors to take advantage of Foxconn’s extensive manufacturing expertise.”
Mr. Ninivaggi, who has been on the job for a little over a month, said in an interview on Thursday that he expected the deal to be completed by April 30 and that he was convinced it was a “strategic priority” for Foxconn. He described the potential as a “shift in business model” for Lordstown away from focusing on manufacturing to a focus on design, innovation and sales. Mr. Ninivaggi rejected the notion that it is mainly a real estate transaction.
“We don’t look at this as a real estate deal. The strategic component was more important to us,” he said. “The key to the success of that plant is filling it.”
Lordstown’s mayor, Arno Hill, said he had not been apprised in advance of the Foxconn deal but would view it as a positive development for a community that lost about 1,500 jobs when G.M. idled the factory in 2019.
“You would have somebody coming in with deep pockets to be able to fund it,” he said. “That would be a good thing for us.”
Acquiring the Lordstown factory could advance Foxconn’s hopes of expanding into auto production from its core business of assembling electronics. The company, which has extensive operations in China, announced a deal this year 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 “next generation” dashboards and touch-screen displays for cars.
But Foxconn has had an uneven history in the United States. In 2017, the company and President Donald J. Trump announced that it would invest $10 billion in a factory in Wisconsin that would employ at least 13,000. But after years of little activity on the ground, Foxconn sharply scaled back that plan. 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 an early boost from Mr. Trump, who claimed that 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 the Endurance at an event on the White House lawn.