The deal could result in the sale of the ailing Ohio auto factory to Foxconn. Lordstown is under federal investigation and needs more money to mass-produce an electric pickup truck.
Lordstown Motors, a struggling electric truck manufacturer, said Thursday that it has reached an agreement in principle to work with Foxconn, a contract manufacturer known for assembling Apple’s iPhones, to develop its electric vehicles and ultimately could sell its Ohio factory to Taiwanese corporations.
Lordstown said the factory sale could be valued at $ 230 million. Lordstown is struggling to mass produce a long-awaited pickup truck called the Endurance. The company is running out of cash after burning off much of the roughly $ 700 million raised by investors when it went public through a merger last October.
Talks about the deal were previously reported by Bloomberg. That report prompted Lordstown stock to rise more than 8% in trading on Thursday.
The company said it would continue to use the factory to build the Endurance by leasing the Foxconn space if the sale was completed. Foxconn would then offer employment contracts to some employees of the Lordstown production. Businesses in trouble often use sell-to-let operations as a way to raise money.
Lordstown said the agreement was in principle “non-binding and subject to negotiation”. Foxconn has substantially downsized a plan to build a manufacturing complex in Wisconsin announced several years ago.
The proposed deal essentially calls for Lordstown to rely on Foxconn to mass-produce its planned electric truck.
Lordstown has been telegraphing for months that it hoped to use its factory in the city of Lordstown, which is located between Cleveland and Pittsburgh, in this way. But some analysts have said the company will need far more money – potentially hundreds of millions of dollars – to make its truck commercially viable.
In August, the company said it was looking to make room to “house additional manufacturing partners” in the 6.2 million-square-foot factory, which it acquired from General Motors for about $ 20 million. On its website Lordstown announces that the factory is “the epicenter of electrification” in the “heart of America”.
Lordstown said in June it would produce 1,000 trucks by the end of the year. Then, in August, the company said it expects only “limited production” by the end of September. On Thursday, the company said it will spend the rest of the year and “the first part of 2022” making vehicles for “testing, validation, verification and regulatory approvals” – in other words, trucks not intended for sale to customers.
The company faces problems in addition to financial challenges. Securities regulators and federal prosecutors are investigating whether Lordstown and its former CEO, Steve Burns, exaggerated demand for its truck in public statements, potentially misleading investors about the company’s financial health and prospects.
Lordstown also faces intense competition from other start-ups such as Rivian, which began manufacturing electric pickups for customers two weeks ago, and from established automakers such as Ford Motor and GM, which are planning to start selling electric trucks in the UK. next months.
Unsurprisingly, Lordstown is looking to sell its factory, given the Wall Street and real estate background of David Hamamoto, a board member and the driving force behind the merger that took the start-up audience last year.
Mr. Hamamoto, a former Goldman Sachs executive who formed a true state investment firm called NorthStar, was one of the founders of the special purpose acquisition firm that merged with Lordstown last October.
That acquisition company, DiamondPeak Holdings, originally planned to acquire a private company in the real estate sector. The deal with Lordstown began to take shape in June 2020 when Hamamoto and his team faced a deadline to complete a deal or risk the prospect of returning the money raised by investors in an initial public offering. Acquisition companies like DiamondPeak, which Mr. Hamamoto made public in early 2019, typically have two years to find a merger partner.
Acquisition companies as it happens have been all the rage on Wall Street over the past couple of years, raising over $ 190 billion from investors. But these groups have been scrutinized by regulators and prosecutors because the deals they engage in are often structured to favor early investors. Additionally, executives involved in acquisition companies and their acquisition goals have made bold claims about their business prospects when they are trying to win over investors.
Lordstown said investigations by the Securities and Exchange Commission and federal prosecutors are also focusing on the events surrounding its merger with DiamondPeak.
The attempted agreement with Foxconn comes at a fortuitous moment for Mr. Hamamoto. The merger agreement had prevented him from selling his shares in the company until the anniversary of the agreement’s closing in October 2020. Hamamoto did not respond to a request for comment.
However, even with the news of the Foxconn deal, Lordstown’s stock is trading well below the company’s high of $ 31 per share and the $ 10 price at which DiamondPeak went public.
As part of the deal, Foxconn agreed to buy $ 50 million worth of Lordstown stock at a price of $ 6.89.
Daniel Ninivaggi, chief executive of Lordstown, said in a statement that the partnership “would allow Lordstown Motors to leverage Foxconn’s vast manufacturing experience.”
Mr. Ninivaggi, who has been working for just over a month, said in an interview Thursday that he expected the deal to be completed by April 30 and was convinced it was a “strategic priority” for Foxconn. He described the potential as a “business model shift” for Lordstown from focusing on manufacturing to focusing on design, innovation and sales. Mr. Ninivaggi rejected the idea that this is mainly a real estate operation.
“We don’t see it as a real estate deal. The strategic component was more important to us, “he said.” The key to that plant’s success is to fill it. “
Lordstown Mayor Arno Hill said he was not informed in advance of the Foxconn agreement, but would consider it a positive development for a community that lost some 1,500 jobs when G.M. inactive the factory in 2019.
“You would have someone who comes in with deep pockets to be able to finance it,” he said. “It would be a good thing for us.”
The acquisition of the Lordstown factory could advance Foxconn’s hopes of expanding into auto manufacturing from its core electronics assembly business. The company, which has extensive operations in China, announced an electric vehicle manufacturing agreement with Fisker, another start-up this year. In May, Foxconn also announced a partnership with Stellantis, the merged company of Fiat Chrysler and Peugeot of France, to develop “next-generation” dashboards and touch-screen displays for cars.
But Foxconn has had an erratic 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. But after years of little activity in the field, Foxconn has drastically downsized that plan. This year, the company said it will invest less than $ 1 billion in a factory that will employ fewer than 2,000 people by 2026.
Lordstown also received an initial boost from Mr. Trump, who said the start-up would help save and create manufacturing jobs in eastern Ohio. During the 2020 presidential campaign, he invited Mr. Burns to Washington to show the Endurance at an event on the White House lawn.