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Here are the pros and cons of the Lordstown Motors-Foxconn deal

By Mary Vanac – Staff Reporter, Cleveland Business Journal
Oct 7, 2021 Updated 5 hours ago

Securities analysts and shareholders have had a week to digest Lordstown Motors' proposed asset sale and co-manufacturing deal with Hon Hai Technology Group, better known as Foxconn.

Let's recap:

On Sept. 30, Lordstown Motors Corp., the Youngstown, Ohio-area startup that became cash poor while designing its first electric vehicle for the commercial fleet market, said it had struck a complicated agreement with Foxconn, the Taiwanese contract electronics manufacturer.

Among the points in the agreement, not only would Lordstown Motors sell its plant, shares of stock and warrants to buy future shares, but Foxconn would take over making Lordstown Motors' first commercial product, the Endurance pickup truck.

It didn't take long for the market to react.

Lordstown Motors shares (Nasdaq: RIDE) rose 8.4% to $7.98 on Sept. 30 but have since fallen 35.8% percent to $5.12, as of late-afternoon trading on Thursday.

Here are the pros of the deal:

1. The deal gives Lordstown Motors about $298 million in financial breathing room.

2. It transfers to Foxconn, an experienced contract manufacturer that has been breaking into the electric vehicle industry, much of the responsibility for getting Endurance out the door.

3. As has been the case for Fisker Inc. (NYSE: FSR), the electric vehicle manufacturer in southern California that finalized development and manufacturing agreements with Foxconn in May, the deal could shorten Lordstown Motors' time to market and reduce its manufacturing costs.

4. It gives the local automaker access to Foxconn's well-developed supplier ecosystem — important especially during this time of pandemic-disrupted supply chains.

Lordstown Motors, which had been trying to launch a limited production run for Endurance by the end of September, now plans "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," the company said in a press release.

The automaker said it would inform analysts and shareholders about any Endeavor production impacts from the Foxconn deal when it announces third-quarter earnings in November.

Here are the cons:

1. Foxconn could end up owning a substantial percentage of the electric vehicle maker's stock.

2. Lordstown Motors would have to make lease payments on the portion of the plant it uses.

3. The $298 million that Lordstown Motors could raise through the plant and stock sales, and warrant exercises would be a drop in the bucket. Lordstown Motors said Sept. 30 that it expects to make up to $400 million in capital; up to $120 million in selling, general and administrative; and up to $340 million in research and development expenditures in 2021.

4. Foxconn would get "certain rights" related to the automakers' future vehicle programs and licensing arrangements, and Lordstown Motors could lose control of some of its intellectual property.
https://www.bizjournals.com/cleveland/news/2021/10/07/cons-weigh-on-lordstown-motors-foxconn-deal.html?ana=yahoo

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