Lordstown Motors: Still No Definitive Agreement Reached with Foxconn

On March 24, Lordstown Motors Corp. (NASDAQ: RIDE) President Edward Hightower spoke at a gathering of companies involved in the electric vehicle (EV) industry. At that meeting, he said (remarkably) that Lordstown had still not reached an agreement with Hon Hai Technology Group (better known as Foxconn, the assembler of Apple’s iPhones) to jointly develop the Endurance all-electric pickup truck that Lordstown created.

That the companies have not yet turned their mid-November 2021 agreement in principle into a contract as to be viewed as disappointing. Lordstown shares have jumped nearly 50% over the last two weeks as the stock has participated in the speculative frenzy over this period. Given the lack of constructive Foxconn news, coupled with quite modest cash flow generation prospects for at least the next two years, Lordstown seems at risk of retracing much of its recent rally. 

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 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; 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.

A consideration overhanging the Foxconn-Lordstown agreement is that Foxconn has not always honored (at least the spirit of) agreements entered into within 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 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 Februrary 28, Lordstown reported 4Q and full year 2021 results. On the positive side, the company’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, 2021September 30, 2021June 30, 2021March 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)196.4182.1176.6176.6

However, 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 only about US$200 million of total revenue will be realized in 2022 and 2023 combined. Lordstown will almost certainly have to further dilute its shareholders over the next 21 months by issuing significant equity to cover its cash needs over and above these revenue levels. 

4Q 2021 Earnings Report (Issued 2/28/22)3Q 2021 Earnings Report (Issued 11/11/21)Year 2021 Guidance (Issued 9/30/21)
Start of Endurance Commercial Production3Q 20223Q 20222Q 2022
2022E Endurance Unit  Sales500
2023E Endurance Unit  SalesAs many as 2,500

If Foxconn eventually were to close its agreement with Lordstown, this would represent a constructive development for Lordstown shareholders, but other daunting challenges exist beyond just the financial ones outlined above. By the time Foxconn/Lordstown begins delivering the Endurance to customers, it will be competing against many well-reviewed electric trucks that have enjoyed considerable production head starts, including Ford’s F-150 Lightning and Rivian Automotive’s R1T model.

Lordstown Motors Corp. last traded at US$3.12 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.

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