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Lordstown (RIDE) Gets a Breather With Foxconn Deal, Tweaks '21 View

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Lordstown Motors Corporation (RIDE - Free Report) recently announced that it has inked an agreement with Hon Hai Technology Group (Foxconn), a global technology firm, to work together on scalable electric vehicle (EV) programs in the 6.2 million-square-foot production and assembly plant of the former in Lordstown, OH.   

As part of the deal, both companies will put in the best efforts to negotiate a definitive agreement, per which the Taiwan-based electronics contract manufacturer would buy the Lordstown assembly plant in northeast Ohio for $230 million and manufacture Lordstown’s first product, an all-electric full-size pick-up truck, called the Endurance.

Per the agreement, Foxconn, the electronics maker renowned for assembling Apple's iPhone, will purchase approximately $50 million of Lordstown’s common stock at a price of $6.8983 per share. Further, Lordstown intends to enter into a long-term lease for a portion of the existing facility for its Ohio-based employees, and Foxconn plans to offer employment to the agreed-upon Lordstown employees.
The latest agreement would enable Lordstown to take bank on Foxconn’s state-of-the-art technology, manufacturing expertise and cost-efficient supply chain, as the former pursues the production of EVs at its Ohio facility. The partnership will open up greater market opportunities for both Lordstown and Foxconn to rev up EV production in North America.

Lordstown has been short of cash as it attempts to begin production of the Endurance. In June, the EV start-up raised red flags about its ability to sustain as a going concern into the next year because of the problems for funding the production of the Endurance.

Selling the plant to Foxconn will provide the much-needed capital for the cash-strapped company. Meanwhile, if completed, the agreement will provide Foxconn a North American presence in the EV light-duty commercial fleet truck market. The deal will also aid Foxconn to jumpstart the production of EVs. Foxconn also has a deal with another start-up, Fisker, to produce its EVs in the coming years. The latest deal would also enable Fisker to pull ahead production of its planned vehicle with Foxconn, called Project PEAR.

Lordstown continues to move forward with its plan to build a limited number of vehicles for testing, validation, verification and regulatory approvals during the balance of 2021 and the first part of 2022.

In light of this latest announcement, Lordstown also issued an update on its 2021 financial outlook. While the total capital expenditure estimate remains unchanged in the $375-$400 million band, the SG&A expenditures are projected at $105-$120 million, up from $95-$105 million, primarily due to the higher legal and professional fees. The R&D expenditures are now forecasted to be $320-$340 million, up from the previous projection of $310-$320 million, chiefly due to the increased prototyping and pre-production expenses.

The cash balance as on Sep 30, 2021 is estimated between $210 million to $240 million, down from the earlier forecast of $225 million to $275 million, which includes approximately $20 million of proceeds from the issuance of common stock under the company’s Equity Purchase Agreement in August and September but excludes proceeds from Foxconn’s purchase of $50 million of the company’s common stock as recently announced.

Lordstown, an electric light duty truck start-up focusing on the commercial fleet market, is another SPAC IPO in the EV space. The Ohio-based electric truckmaker debuted on NASDAQ on Oct 26, 2020, upon completion of the reverse merger with DiamondPeak Holdings Corp.

Lordstown purchased the massive Ohio facility in 2019 from General Motors (GM - Free Report) , which had ceased operations at the plant amid its restructuring plans. Boasting 600 horsepower and a range exceeding 250 miles on a single recharge, Lordstown Endurance is one of the most anticipated electric pick-ups, but the company has struggled to commence the commercial production of its debut pick-up truck at scale on lack of additional funding.

Apart from its financial woes, in June, an internal investigation found issues regarding the accuracy of certain statements around Lordstown’s preorders, specifically the seriousness of the orders and who was making them. This was followed by Steve Burns, Lordstown founder, chairman and chief executive officer, and Julio Rodriguez, its chief financial officer voluntarily resigning from the company.

Lordstown, with no sellable product as of now, aspires to enter a highly competitive genre of the EV market, with electric pick-up trucks coming from big names like Tesla (TSLA - Free Report) and Ford (F - Free Report) among others.

Lordstown carries a Zacks Rank of 4 (Sell), currently.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.