Lordstown Motors (NASDAQ:RIDE) said that it has entered into a "definitive" agreement to sell its Ohio factory to Taiwan's Hon Hai Precision Industry (OTC:HNHPF), better known as Foxconn, in a deal that will raise nearly $300 million for the embattled electric-truck start-up.

The deal provides a glimmer of hope for long-suffering Lordstown shareholders, after a year in which a short-seller's allegations of fraud led to the departure of the company's founder.

But is it enough to make Lordstown's stock a buy? 

The key points of Lordstown's deal with Foxconn

The fact that there's a deal isn't exactly news, in that Lordstown and Foxconn said at the end of September that they had reached an agreement in principle. But it's now a done deal, more or less, and these are the highlights:

  • Lordstown will sell its factory, excluding some of its own tooling, to Foxconn for $230 million. 
  • Foxconn will make a down payment of $100 million by Nov. 18, additional payments of $50 million on Feb. 1 and by April 15, and will pay the balance when the deal closes. (The parties currently expect to close by the end of April.) 
  • Before the deal closes, Lordstown and Foxconn will work to complete a contract under which Foxconn will manufacture Lordstown's Endurance electric pickup. 
  • The parties will also work to complete a joint-venture deal to design and manufacture electric commercial vehicles using an open-source electric-vehicle platform called MIH (for Mobility in Harmony), which is backed by a number of Asian manufacturers. 
  • When the deal closes, Foxconn will receive warrants to acquire 1.7 million shares of Lordstown at $10.50 per share. 
  • As a gesture of confidence, Foxconn has already bought $50 million worth of Lordstown stock directly from the company at just under $6.90 per share.

The key to the deal, of course, is Lordstown's factory, a huge former General Motors (NYSE:GM) plant that is much larger than Lordstown itself needed. (Lordstown Motors takes its name from the village of Lordstown, Ohio, where the plant is located.) 

A prototype Lordstown Endurance, an electric pickup truck.

Foxconn will build Lordstown's electric pickup, called the Endurance, under contract. Image source: Lordstown Motors.

Foxconn plans to use the Lordstown plant for contract manufacturing of electric vehicles, and has already said that it expects to build California start-up Fisker's (NYSE:FSR) second vehicle (called the PEAR) at the factory. (Fisker's first product, an electric SUV called the Ocean, will be built under contract by a unit of auto supplier Magna International.) 

Does this make Lordstown Motors stock a buy?

The good news for Lordstown is that this deal should give it sufficient cash and resources to get the Endurance into production. 

The less-good news is that the Endurance still faces a daunting competitive landscape. Auto investors who have followed the Lordstown saga for a while will recall that the Endurance is ostensibly tailored to the needs of commercial-fleet customers. 

The problem: The dominant player in commercial vehicles in North America has its own electric pickup coming next spring. Not only that, but the company in question, Ford Motor Company (NYSE:F), will launch a special version of its F-150 Lightning optimized for fleet duty. And that truck, to be called the F-150 Lightning Pro, will start at about $40,000, undercutting the announced price of the Endurance by a whopping $15,000. 

(Ford will offer a better-equipped, longer-range version of the Lightning Pro for about $50,000, which still beats the Endurance's announced $55,000 starting price by a significant margin.)

A 2022 Ford F-150 Lightning Pro, an electric pickup truck optimized for fleet duty, on a construction site.

With a starting price around $40,000 and a huge list of fleet-friendly features, Ford's F-150 Lightning Pro will be a brutal competitor for Lordstown's Endurance. Image source: Ford Motor Company.

Ford is also going to great lengths to make it easy for its very large number of fleet customers to integrate the Lightning, and other electric Fords, into their existing internal-combustion fleets, with software and charging options that Lordstown probably doesn't have the resources to match, even after this deal.

As if that wasn't enough, the other big player in commercial vehicles, General Motors, is planning to unveil its own electric Chevrolet Silverado pickup in January. I expect the electric Silverado to give the F-150 Lightning some tough competition. And I don't think that investors should expect Ford and GM to leave much room for Lordstown in the hotly contested commercial-fleet market (or anywhere else). 

The bottom line: There are long shots, and then there's Lordstown Motors

All EV start-ups face a tough path to competing with the so-called "legacy" automakers, which have the (tremendous) advantages of scale, manufacturing expertise, and global distribution networks already in place. I can think of a few that could carve out profitable niches in the market, but I think it's very unlikely that Lordstown will turn out to be one of them. I wouldn't buy the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.