Electric-truck start-up Lordstown Motors (RIDE -0.75%) just confirmed a meaningful deal that should fetch it some much-needed cash. You'd think the development should have sent the electric-vehicle stock soaring.
Instead, Lordstown shares are cracking this morning and were down 15% as of 11:55 a.m. EDT.
Lordstown shares surged on Sept. 30 after Bloomberg reported the company is nearing a deal with Hon-Hai Precision (HNHPF -0.16%), better-known as Foxconn, to sell its assembly plant in Ohio. Lordstown confirmed the rumor later in the evening, but there's a lot more to it than just an asset sale.
In a press release, Lordstown announced it has partnered with Foxconn to "work jointly" on its electric-vehicle programs at the 640-acre facility in Ohio. Once a definitive agreement is reached, Foxconn will purchase parts of the facility for $230 million.
So far, so good, but multiple things in the announcement and Lordstown's new production and financial updates have investors miffed.
First, Lordstown states Foxconn will "manufacture" its electric-pickup Endurance under contract manufacturing. Lordstown will also give Foxconn "certain rights with respect to future vehicle programs." If Foxconn will manufacture Lordstown's only pickup, it's not clear yet what that leaves Lordstown with.
Second, Foxconn will buy shares of Lordstown worth $50 million at a price of $6.8983 per share. With Lordstown shares opening Friday at a price as high as $8.79 a share, Foxconn's deal was bound to put downward pressure on the stock.
As of the time of this writing, Lordstown shares are hovering around Foxconn's buy price.
Third, this deal also raises uncertainty about Endurance's production timeline. In a subsequent update released last evening, Lordstown said it will build only a "limited number of vehicles for testing, validation, verification and regulatory approvals" through 2021 and the first half of 2022, will evaluate the Foxconn deal's impact on commercial production, and will provide an update mid-November during its third-quarter earnings release.
In August, Lordstown stated it will begin limited production in September, complete vehicle validation and regulatory approvals by January, start delivering vehicles to select customers in Q1, and ramp up deliveries aggressively by Q2 2022.
Going by Lordstown's latest update, it appears its first deliveries may not see the light of day until later in 2022.
Ironically, Fisker, which is building electric SUVs in partnership with Foxconn, revealed it will build its sub-$30,000 SUV Pear at Lordstown's Ohio facility and now expects an earlier launch.
Fourth, to make matters worse, Lordstown now expects:
- Higher selling and administration expenses worth $105 million-$120 million, versus the $95 million-$105 million it projected in August.
- Higher research and development expenses worth $330 million at the midpoint, versus $315 million projected earlier, primarily on prototypes and pre-production expenses.
Fifth, Lordstown ended September with a lower cash balance of $210 million-$240 million, versus projections of $225 million-$275 million.
Although Lordstown monetizing its facility and partnering with Foxconn may come as a breather for the embattled truck maker, investors expected it to lease out parts of its facility and not really give up production rights of its only pickup. Lots of ifs and buts remain, and investors will now have to wait until November to understand where the electric-vehicle stock could really be headed.