Lordstown Motors Finalizes Accord with Foxconn – But Cash Sufficiency Issues Remain
On May 11, Lordstown Motors Corp. (NASDAQ: RIDE) finally reached an agreement with Hon Hai Technology Group (better known as Foxconn, the assembler of Apple’s iPhones) to develop the Endurance all-electric pickup truck that Lordstown created. Had the accord not been finalized, Lordstown likely would have been forced to seek bankruptcy protection. In response, Lordstown’s stock rallied nearly 50% to US$2.22 a share on May 12.
The May 11 agreement codified a November 2021 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 paid US$100 million on November 18, 2021; US$50 million on January 28, 2022; US$50 million on April 15, 2022; and the balance, or US$30 million, on May 11, 2022. Foxconn also paid Lordstown US$27.5 million on May 11 as reimbursement for certain specified operating and expansion costs that Lordstown incurred from September 1, 2021 through the May 11 closing date.
Importantly for cash-strapped Lordstown, its March 31, 2022 cash balance, pro forma for the US$107.5 million in final Foxconn payments received in April and May, exceeds US$300 million.
Lordstown and Foxconn also finalized details of a contract manufacturing agreement that allows Foxconn to manufacture the Endurance. Keep in mind that now Lordstown must pay Foxconn fees to manufacture the vehicles; those costs are likely to be considerable.
Lordstown’s cash position remains tenuous. It burned about US$91 million in cash (defined as negative operating cash flow plus capital expenditures) in 1Q 2022, and similar quarterly cash burn levels seem possible well into 2023. At that pace, Lordstown will not take long to consume its US$300+ million in pro forma cash.
|(in thousands of US $, except for shares outstanding)||March 31, 2022||December 31, 2021||September 30, 2021||June 30, 2021||March 31, 2021|
|Operating Cash Flow||($69,033)||($141,750)||($74,866)||($99,854)||($71,520)|
|Cash – Period End||$203,564||$244,016||$233,831||$365,900||$587,043|
|Debt – Period End||$0||$0||$0||$0||$1,015|
|Shares Outstanding (Millions)||197.0||196.4||182.1||176.6||176.6|
Lordstown expects to produce and sell only about 500 Endurance electric trucks in 2022, and only up to 2,500 in 2023. At a possible all-in price of around US$65,000 per vehicle, that implies that just US$200 million of total revenue will be realized in 2022 and 2023 combined. In its 1Q 2022 earnings conference call, management acknowledged that it must raise around US$150 million in additional cash this year. Raising that magnitude of funds will be challenging, particularly in the current skeptical stock market environment.
Lordstown averted an almost certain bankruptcy filing by finalizing its accord with Foxconn after nail-biting delays. However, cash sufficiency issues continue to dog the company. Investors may want to consider lightening up positions after the stock’s recent reflex rally.
Lordstown Motors Corp. last traded at US$2.45 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.