In a late January 2022 interview with Nikkei Asia, Young Liu, the chairman of Hon Hai Technology Group (better known as Foxconn, the assembler of Apple’s iPhones) said the Endurance all-electric pickup truck would begin rolling off the Lordstown, Ohio assembly line in the second half of 2022. If true, this would be good news for Lordstown Motors Corp. (NASDAQ: RIDE), the creator of the pickup truck, but Lordstown and Foxconn’s not yet turning their mid-November 2021 agreement in principle into a contract has to be viewed as at least somewhat concerning.
As background, on November 10, 2021, Lordstown announced the agreement in principle with Foxconn. It was a refinement of the initial tentative deal reached in September 2021. Under the deal, Foxconn will purchase Lordstown’s 6.2 million square foot production and assembly plant in Lordstown, Ohio (excluding the hub motor assembly line and the battery module and pack lines) for US$230 million. Foxconn would pay US$100 million on November 18, 2021; US$50 million on February 1, 2022; US$50 million by April 15, 2022; and the balance, or US$30 million, at a targeted April 30, 2022 closing date.
In addition, Lordstown and Foxconn will pursue a contract manufacturing agreement so that Foxconn will manufacture Lordstown’s Endurance™ all-electric pickup truck.
It is unknown whether the US$50 million payment due on February 1, 2022 has been made. Lordstown has not yet filed an 8-K report saying so, but it is unclear if such a disclosure is required. The payment is key because of Lordstown’s tenuous cash position.
Based on its 3Q 2021 earnings release, Lordstown expects to have a year-end 2021 cash balance of US$150-US$180 million. This figure includes the US$100 million presumably received from Foxconn in mid-November 2021. Lordstown’s projected cash level implies a 4Q 2021 cash burn, defined as cumulative SG&A, R&D and capital expenditures, of US$170-US$200 million. Clearly, Lordstown could not withstand too many more quarters at such a cash burn level if the Foxconn agreement were not to close.
|(in thousands of US $, except for shares outstanding)||Quarter Ended September 30, 2021||Quarter Ended June 30, 2021||Quarter Ended March 31, 2021||Year Ended December 31, 2020|
|Operating Cash Flow||($74,866)||($99,854)||($71,520)||($64,320)|
|Cash – Period End||$233,831||$365,900||$587,043||$629,761|
|Debt – Period End||$0||$0||$1,015||$1,015|
|Shares Outstanding (Millions)||182.1||176.6||176.6||168.0|
A consideration overhanging the Foxconn-Lordstown agreement is that Foxconn has not always honored (at least the spirit of) agreements Foxconn has reached in the U.S. For example, in May 2017, the company reached an agreement with the state of Wisconsin to invest US$10 billion in a proposed liquid crystal display (LCD) screen manufacturing plant in the state. It would have created 13,000 jobs.
Nothing approaching that scale of investment ever happened. The town and county where the factory was to be built issued US$400 million of bonds to support the development. In turn, a 4,000-acre industrial park was created on which reportedly only five lightly-used structures have been built. In April 2021, Foxconn renegotiated an agreement with the state that now calls for a planned investment of only US$672 million and would create just 1,454 jobs.
If Foxconn adheres to and closes its agreement with Lordstown, which would allow Endurance deliveries to begin in 2H 2022, this would represent a quite constructive development for Lordstown. However, if this schedule were to be delayed, the list of Lordstown’s challenges will grow longer as a significant cash bleed will persist for a number of quarters. Further equity issuances are likely.
In any event, by the time Foxconn/Lordstown begins delivering the Endurance to customers, it will be competing against many well-reviewed electric trucks, including Ford Motor Company’s F-150 Lightning and Rivian Automotive, Inc.’s R1T model.
Lordstown Motors Corp. last traded at US$3.04 on the NASDAQ.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.