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Lordstown Motors to partner with Foxconn, a contract manufacturer


Lordstown Motors, a troubled electric truck manufacturer, said on Thursday it had reached an agreement in principle to partner with Foxconn, a contract manufacturer best known for assembling Apple’s iPhone, developing its electric vehicles and eventually its factory in Ohio to the Taiwanese company.

Lordstown said sales of the plant could reach $230 million. Lordstown struggles to mass-produce a highly anticipated pickup truck called the Endurance. The company is running out of cash after it used up much of the roughly $700 million it raised from investors when it went public through a merger last October.

The deal talks were: previously reported by Bloomberg. That report pushed Lordstown shares up more than 8 percent in trading on Thursday.

The company said it would continue to use the factory to make the Endurance by leasing back space from Foxconn when the sale was completed. Foxconn would then offer employment contracts to some Lordstown factory workers. Troubled businesses often resort to sale-leaseback deals as a way to raise money.

Lordstown said the agreement was in principle “non-binding and subject to negotiation”. Foxconn has significantly scaled back a plan to build a manufacturing complex in Wisconsin that was announced several years ago.

Under the proposed agreement, Lordstown would essentially rely on Foxconn to mass-produce its planned electric truck.

Lordstown has been telegraphing for months that it hopes to use its factory in the town of Lordstown, between Cleveland and Pittsburgh, this way. But some analysts have said the company needs a lot more money, potentially hundreds of millions of dollars, to make its truck commercially viable.

In August, the company said it wanted to make space to “house additional manufacturing partners” in the 6.2 million square foot plant, which it bought from General Motors for about $20 million. On its website, Lordstown calls the plant 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 would spend the rest of the year and “the early part of 2022” making vehicles for “testing, validation, verification and regulatory approvals” — in other words, trucks that aren’t meant to be sold to customers. to be sold.

The company faces problems in addition to its financial challenges. Securities regulators and federal prosecutors are investigating whether Lordstown and its former CEO, Steve Burns, have exaggerated demand for his truck in public statements, potentially misleading investors about the company’s financial health and prospects.

Lordstown also faces stiff competition from other start-ups such as Rivian, which started manufacture electric pickup trucks for customers; two weeks ago, and from established automakers such as Ford Motor and GM, who plan to start selling electric trucks in the coming months.

Unsurprisingly, Lordstown wants 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 made the start-up public last year.

Mr. Hamamoto, a former Goldman Sachs president who founded a true state investment firm called NorthStar, was one of the founders of the special acquisition company that merged with Lordstown last October.

That acquisition company, DiamondPeak Holdings, originally planned to acquire a privately held real estate company. The Lordstown deal began to materialize in June 2020 when Mr. Hamamoto and his team were faced with a deadline to close a deal or risk the prospect of returning the money it raised from investors in a first public offering. Acquisition companies such as DiamondPeak, which Mr. Hamamoto made public in early 2019, normally have two years to find a merger partner.

Coincidentally, acquisitions have been all the rage on Wall Street for the past two years, raising more than $190 billion from investors. But these outfits have come under scrutiny from regulators and prosecutors because the deals they enter are often structured to favor early investors. In addition, executives involved in acquisition companies and their acquisition goals have made bold claims about their business prospects when trying to win over investors.

Lordstown has said investigations by the Securities and Exchange Commission and federal prosecutors also focus on events surrounding the DiamondPeak merger.

The tentative deal 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 deal’s closing in October 2020. 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 a share and the $10 price at which DiamondPeak went public.

As part of the agreement, Foxconn agreed to purchase $50 million worth of Lordstown shares at a price of $6.89.

Lordstown Chief Executive Daniel Ninivaggi said in a statement that the partnership would “enable Lordstown Motors to benefit from Foxconn’s extensive manufacturing expertise.”

Mr Ninivaggi, who has been on the job for just over a month, said in an interview on Thursday that he expected the deal to close on April 30 and was confident it was a “strategic priority” for Foxconn. He described the potential as a “business model shift” for Lordstown away from a focus on manufacturing to a focus on design, innovation and sales. Mr. Ninivaggi rejects the idea that it is primarily a real estate transaction.

“We don’t see this as a real estate deal. The strategic component was more important to us,” he said. “The key to the success of that plant is filling it.”

Lordstown Mayor Arno Hill said he was not given advance notice of the Foxconn deal but would view it as a positive development for a community that lost about 1,500 jobs when GM shut down the plant in 2019.

“You’d have someone come in with deep pockets to be able to fund it,” he said. “That would be a good thing for us.”

The acquisition of the Lordstown plant 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 this year an agreement to manufacture electric vehicles with Fisker, another start-up. In May, Foxconn also announced a partnership with Stellantis, the company formed by the merger of Fiat Chrysler and Peugeot of France, for the development of “next generation” dashboards and touchscreen displays for cars.

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

Lordstown also got an early boost from Mr Trump, who claimed 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 demonstrate the Endurance at an event on the White House lawn.

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