It appears that Hon Hai Technology Group (better known as Foxconn, the assembler of Apple’s iPhones) continues to attempt to leverage Lordstown Motors Corp.’s (NASDAQ: RIDE) weak financial position in a high-stakes poker game that will likely determine whether Lordstown can avoid filing for bankruptcy protection. On April 29, Lordstown announced that the deadline to reach a final purchase and joint agreement with Foxconn to develop the Endurance all-electric pickup truck that Lordstown created has been extended to May 14, 2022.
The targeted closing date for the transaction had been April 30, 2022.
On November 10, 2021, Lordstown announced an agreement in principle with Foxconn, which itself was a refinement of an initial tentative deal reached in September 2021. Under the deal, Foxconn will purchase Lordstown’s 6.2 million square foot production and assembly facility 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 (has been paid); US$50 million on February 1, 2022 (paid on January 28, 2022); US$50 million by April 15, 2022 (paid on April 15, 2022); and the balance, or US$30 million, at closing.
In addition, Lordstown and Foxconn must negotiate:
- A contract manufacturing agreement so that Foxconn will manufacture the Endurance™; and
- A joint venture accord for launching the vehicle into the North American and international markets.
If Foxconn and Lordstown cannot reach an agreement by May 14 (or possibly later if the deadline were further extended), Lordstown would be required to repay Foxconn’s total US$200 million in down payments received by that date. Lordstown, of course, does not have the cash needed to make this payment. As a backstop, Foxconn could foreclose on its liens “on substantially all of [Lordstown’s] assets to secure the repayment obligation.”
The great concern for Lordstown in all this is that Foxconn has not always honored (at least the spirit of) agreements it has reached in the United States. 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.
On May 9, Lordstown will release its 1Q 2021 results and discuss the Foxconn agreement status. The details contained in this release may very well dictate the future direction of the company.
In its 4Q 2021 report, Lordstown’s cash balance grew slightly to US$244 million on December 31, 2021 from US$234 million on September 30, 2021, helped by the mid-November US$100 million cash influx from Foxconn. Also, Lordstown’s quarterly cash burn rate, defined as operating expenses plus capital expenditures, fell to about US$114 million in 4Q 2021 from about US$180 million in 3Q 2021.
| (in thousands of US $, except for shares outstanding) | December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 |
| Operating Income | ($84,664) | ($99,282) | ($110,337) | ($106,206) |
| Operating Cash Flow | ($141,750) | ($74,866) | ($99,854) | ($71,520) |
| Capital Expenditures | ($28,986) | ($80,264) | ($121,000) | ($54,264) |
| Cash – Period End | $244,016 | $233,831 | $365,900 | $587,043 |
| Debt – Period End | $0 | $0 | $0 | $1,015 |
| Shares Outstanding (Millions) | 196.4 | 182.1 | 176.6 | 176.6 |
Lordstown Motors Corp. last traded at US$2.18 on the NASDAQ.
Information for this briefing was found via Edgar and the sources 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.
