Author|Wang Lei
Another new force is on the verge of bankruptcy, and it is also related to Foxconn.
Lordstown Motors, a new U.S. automaker, recently issued a "critical illness notice," saying that it may end production of its own models in the near future.
Lordstown has one electric pickup truck in production, and once production is discontinued, it means that the new car company is also coming to an end.
Like the bankruptcy of many new car companies, Lordstown's bankruptcy was due to running out of cash and desperately needed blood transfusions. However, the major shareholder behind this new car company is the long-known Hon Hai Group, the parent company of Foxconn.
Documents filed by Lordstown show that Foxconn intends to stop investing in Lordstown on the grounds that it violated the investment agreement.
The reason is that its share price has been below $1 for a long time, does not comply with Nasdaq's listing rules, and will exit the deal if the default is not resolved within 30 days.
If the dispute with Foxconn cannot be resolved in a timely manner as planned and other sources of financing are identified, Lordstown may need to scale back or cease operations and voluntarily file for bankruptcy protection in accordance with the bankruptcy law.
After Lordstown's bankruptcy protection announcement, the company's shares fell as much as 50 percent, falling to an all-time low of 25 cents per share on Monday. Two years ago, its share price peaked at $31.57.
01
and Foxconn's love-hate relationship
The honeymoon period of Lordstown and Foxconn is only half a year.
In November, Hon Hai agreed to spend up to $170 million to buy common stock and newly created preferred stock in Lordstown. On the 22nd of the same month, the parties completed a preliminary transaction in which Hon Hai purchased approximately $22.7 million of Class A common stock and $30 million of preferred stock.
Source: Lordstown
If the capital increase is fully completed, Hon Hai Group will have a 19.3% stake in Lordstown. According to the investment agreement, Foxconn should complete the $47.3 million investment within ten days of the approval of the Committee on Foreign Investment in the United States (CFIUS), that is, the investment must be made by May 8.
But now it appears that Lordstown may not be able to get those investments.
The reason was that in April, Lordstown received a letter from Nasdaq warning that the company was at risk of delisting due to its depressed share price.
It was this delisting warning letter that became the trigger for Hon Hai to terminate its investment.
On April 21, Lordstown received a letter from Hon Hai alleging that it had breached the investment agreement agreed between the parties, arguing that Lordstown had failed to meet the conditions of the original investment agreement and would suspend the subsequent investment if it could not correct the breach within 30 trading days.
Lordstown then filed a complaint against Foxconn, arguing that its breach of contract allegations were baseless and that the agreement remained valid because Foxconn had not made "reasonable commercial efforts" to reach the budget and milestones of the electric vehicle project and facilitate related financing, as previously agreed.
Source: Lordstown
Hon Hai also issued a statement in response, strongly opposing Lordstown's alleged breach of contract, saying that Lordstown's stock price has been unable to maintain above $1 for a long time, which has violated the content of the investment agreement between the two parties, and requires the latter to resolve the issue of this breach.
In the meantime, Hon Hai said it understands that Lordstown is evaluating improvements and "we remain willing to continue to negotiate with them to reach an outcome that is acceptable to both parties and beneficial to their respective stakeholders." ”
Lordstown believes that if subsequent closing is not possible, the company will be deprived of the critical financing necessary for its operations, and bluntly states that its "ability to raise capital in the current market environment is extremely limited."
In fact, before the "fight" with the gold owner, Lordstown had saved himself. On April 11, Lordstown submitted a proposal for its annual general meeting scheduled for May 22 to approve a reverse split of its Class A common stock in the range of 1-to-3 to 1-for-15.
But no matter what method you want to save yourself, there is a prerequisite, that is, Lordstown will be back in compliance with Nasdaq's listing regulations by October 16.
02
Delivery is in the single digits
Founded in 2018 as a commercial electric light truck supplier, Lordstown Motors was founded by Steve Burns, former CEO of American cargo truck manufacturer Workhorse, headquartered in Lordstown, Ohio, USA.
Source: Lordstown
In October 2020, Lordstown went public through a SPAC company, initially valued at $1.6 billion. It also received support from GM, but in the fourth quarter of 2021, GM sold its stake in Lordstown.
Car building has always been a money-burning business, and Lordstown Motors quickly burned all the cash raised through the SPAC merger, and still could not achieve mass production after 3 years of establishment.
In order to continue operations, the sale of GM's Lordstown plant to Foxconn has become an important part of its financial pressure.
The plant has a long history, first established by General Motors in 1966, mainly to produce GM Cruze models, which has contributed to GM's efforts in the North American market.
However, later with the bankruptcy of General Motors, the plant was also acquired by Lordstown Motors in 2019 to produce the electric pickup truck Endurance.
For Foxconn, acquiring the plant could qualify for a U.S. car, and the plant could produce 330,000 vehicles a year at full capacity. At the same time, Foxconn also established a joint venture with Lordstown Motors to jointly develop new models based on Foxconn's MIH electric platform.
Source: Lordstown
In the eyes of the outside world, the acquisition of the Lordstown plant is regarded as a key beginning for Foxconn to enter the car manufacturing circle.
But even with Foxconn's blood transfusion, Lordstown can't hide its decline. Fourth-quarter 2022 financial data showed that Lordstown's revenue was only $194,000, far below market expectations of $1.29 million, and net loss for the quarter reached $102.3 million, an increase of about 26% from $81.2 million a year ago.
Although the cash holdings in the hands exceed US$220 million, most of it comes from Hon Hai's previous investments.
Without being able to make its own blood, losing Foxconn, the "gold owner", is undoubtedly a fatal blow for Lordstown, after all, it only began to deliver its first electric truck, Endurance, in November.
The Endurence, its first all-electric pickup truck, starts at $52,500 and is primarily aimed at the commercial market, competing with strong competitors such as the Ford F150 lighting and Rivian R1T.
Source: Lordstown
This all-electric pickup truck is equipped with four in-wheel motors and a maximum 109kWh battery, with a total output of 600 hp (approx. 440kW), a top speed of 128 km/h, and a range of more than 250 miles (about 402 km).
In February 2021, CEO Steve Burns said pre-sales of Lordstown Endurance pickup trucks had reached 100,000 units. However, in July, it was investigated by the US SEC for falsifying its pre-sale data, and has not disclosed its order number since then.
Lordstown admitted in its fourth-quarter 2022 financial report that as of February 2023, only about 40 Endurance vehicles have been produced, and the number of deliveries is even only 6, far from the original target.
On February 23, Endurance also temporarily suspended production to address performance and quality issues and recalled 19 trucks to fix possible electrical connection failures.
Source: Lordstown
Lordstown has said the cost of producing the Endurance is already significantly higher than its own $65,000 sales price. Lordstown and Foxconn only signed a foundry agreement, and did not agree on any model development plans for Endurance.
That is, Foxconn is only responsible for production, and all the costs of developing the car are borne by Lordstown. Building a car for a loss also made it more difficult for Lordstown to live.
03
Is Foxconn's dream of building a car okay?
At the other end of Lordstown's imminent bankruptcy is Foxconn's greater car-building ambitions, which certainly does not rule out timely stop-loss.
At that time, in order to obtain the qualification to build cars in the United States, Foxconn quickly cooperated with Lordstown Motors, and the two parties completed the first transaction in May 2022. At that time, Foxconn bought Lordstown's plant in Ohio for $230 million, which was also Foxconn's first car factory.
Source: Lordstown
In addition to $230 million in cash, Foxconn also "sent" $465 million in gift packages to Lordstown.
This includes an additional investment of $100 million and $27 million in operating and expansion costs, and $50 million in Lordstown stock. In addition, Foxconn provided a $45 million loan to Lordstown to meet Lordstown's initial capital commitment to the joint venture.
So in order to win this car factory, Foxconn needs to pay 695 million US dollars, equivalent to 4.7 billion yuan.
After the completion of the transaction, Foxconn took over the factory, all employees of the factory joined Foxconn, and the two parties also signed a contract for Foxconn to produce its model Endurance pure electric pickup truck for Lordstown.
In other words, Foxconn will spend about 4.7 billion yuan to buy a factory in Lordstown, and after buying it, it will continue to produce LordStown models.
This sounds strange, and it is not a good deal for Hon Hai, but after Foxconn acquired the factory, its ambitions were also revealed.
Foxconn first established a 45:55 joint venture with Lordstown, which develops new electric vehicle products based on Foxconn's Mobility-in-Harmony (MIH) open-source platform.
Source: Lordstown
Therefore, Foxconn's view is not necessarily the opportunity to invest in new forces in the United States to make a profit, but to invest in Lordstown to bind customers for its own MIH electric vehicle foundry, and it is also the first mass production partner.
For this cooperation, both parties also have their own ideas, one is to alleviate financial pressure, the other is to seek car manufacturing qualifications, and both sides take what they need.
But Hon Hai, which hopes to become Android in the field of electric vehicles, will naturally not set its sights on only one Lordstown.
In addition to Lordstown, Foxconn has also signed contract manufacturing agreements with other electric vehicle upstarts. Production of its second model, Pear, for Fisker at the Lordstown plant is scheduled to begin in 2024, but the production line is still being revamped.
Not only passenger cars, but also agricultural vehicles Hon Hai do not dislike. The plant in Lordstown also produces its first all-electric agricultural tractor, the Monarch MK-V, for tractor manufacturer Monarch. It also assisted California-based startup Indi EV in building the prototype Indi One.
After all, Foxconn aims to account for 5% of the global electric vehicle market by 2025, with a long-term goal of manufacturing nearly half of the world's electric vehicles. The goal is very ambitious, can Foxconn get its wish?