Lordstown Motors to Work with Contract Manufacturer Foxconn

Lordstown Engines, a troubled electric truck manufacturerApple said on Thursday it has reached an agreement in principle with Foxconn, a contract manufacturer known for assembling its iPhone, to develop its electric vehicles and may eventually sell its Ohio plant to the Taiwanese company.

Lordstown said the sale of the factory could be worth $230 million. Lordstown is struggling to mass-produce a long-awaited pickup truck called the Endurance. The company is cash-strapped after depleting most of the nearly $700 million it raised from investors when it went public through a merger last October.

Agreement negotiations were held Previously reported by Bloomberg. That report put Lordstown shares up more than 8 percent in Thursday trading.

The company said it would continue to use the factory to make Endurance by renting back space from Foxconn once the sale is complete. Foxconn will then offer employment contracts to some Lordstown manufacturing employees. Troubled companies often resort to sale-leaseback agreements to raise cash.

Lordstown said the deal was “non-binding and subject to negotiation” in principle. Foxconn drastically reduces its build plan a manufacturing complex in Wisconsin this was announced a few years ago.

The proposed deal will essentially allow Lordstown to rely on Foxconn to mass-produce its planned electric truck.

Lordstown has telegraphed for months that he hopes to use his factory in the town of Lordstown, located between Cleveland and Pittsburgh, in this way. But some analysts said the company would need much more money, potentially hundreds of millions of dollars, to make its truck commercially viable.

In August, the company said it wanted to “make room for additional manufacturing partners” at the 6.2 million-square-foot factory it bought from General Motors for about $20 million. Lordstown describes the factory on its website as an “electric epicenter” in the “heart of America”.

Lordstown said in June produce 1,000 trucks by the end of the year. Then, in August, the company said it expected “Limited Edition” only until the end of September. On Thursday, the company said it would spend the rest of the year and the “first part of 2022” making vehicles for “testing, verification, validation and regulatory approvals” – in other words, the trucks weren’t supposed to be sold to customers.

The company is facing problems as well as financial difficulties. Securities regulators and federal prosecutors are investigating whether Lordstown and its former CEO Steve Burns exaggerated demand for the 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. production of electric pickup trucks for customers from established automakers like Ford Motor and GM, which plan to start selling electric trucks two weeks ago and in the next few months.

Given his Wall Street and real estate background, it’s not surprising Lordstown wanted to sell his factory. David Hamamoto, a board member and the driving force behind the newly formed public merger last year.

Hamamoto, a former Goldman Sachs executive who founded a true state investment firm called NorthStar, was one of the founders of the special purpose buyout 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 began to come together in June 2020 as Mr Hamamoto and his team faced a deadline to complete a deal or risked the possibility of returning money raised from investors in the initial public offering. Acquisitions like DiamondPeak, which Mr Hamamoto went 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 over the past two years – raising more than $190 billion from investors. But these teams have come under scrutiny by regulators and prosecutors because their deals are often structured in favor of early investors. Also, executives in acquisition companies and takeover targets have made audacious claims about business prospects while trying to win over investors.

Lordstown said investigations by the Securities and Exchange Commission and federal prosecutors also focused on the events surrounding its merger with DiamondPeak.

The tentative deal with Foxconn came at an accidental time for Mr. Hamamoto. The merger deal prevented him from selling his stake 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 news of the Foxconn deal, Lordstown’s stock is trading well below the company’s high of $31 per share and the $10 DiamondPeak IPO price.

As part of the deal, Foxconn agreed to purchase $50 million worth of Lordstown stock for $6.89.

Daniel Ninivaggi, Lordstown’s CEO, said in a statement that the partnership “will allow Lordstown Motors to leverage Foxconn’s extensive manufacturing expertise.”

Mr Ninivaggi, who has been in the post for just over a month, said in an interview on Thursday that he expects the deal to be completed by April 30, and is convinced it is a “strategic priority” for Foxconn. He described the potential as a “change in business model” for Lordstown from focusing on manufacturing to focusing on design, innovation and sales. Mr. Ninivaggi dismissed the notion that this was essentially a real estate transaction.

“We don’t look at it as a real estate deal. The strategic component was more important to us.” “The key to the success of this facility is to fill it.”

Lordstown mayor Arno Hill said he was not informed of the Foxconn deal in advance, but would see it as a positive development for a community that lost nearly 1,500 jobs when GM vacated the factory in 2019.

“Someone with deep pockets would come along to be able to finance it,” he said. “That would be good for us.”

Acquiring the Lordstown plant could boost Foxconn’s hopes of moving from its core business, electronics assembly, to automobile manufacturing. The company, which has extensive operations in China, announced that it has entered into an agreement with another start-up, Fisker, to produce electric vehicles this year. In May, Foxconn also announced a partnership with Stellantis, which was formed by the merger of Fiat Chrysler and French Peugeot. “next generation” dashboards and touch screens for cars.

But Foxconn has an unstable history in the United States. In 2017, the company and President Donald J. Trump announced it would invest $10 billion in a factory in Wisconsin that would employ at least 13,000 people. But after years of little activity in the field, Foxconn scaled back this plan sharply. This year, the company said it will invest less than $1 billion in a factory that will employ less than 2,000 people by 2026.

Lordstown also received early support from Mr Trump, who claimed the initiative would help protect and create manufacturing jobs in eastern Ohio. During his 2020 presidential campaign, he invited Mr. Burns to Washington to showcase Endurance at an event in the White House garden.

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