The deal, which includes the sale of the plant to Foxconn for $230 million, was first announced on September 30.
Let's recall that this is the former GM Lordstown Complex, located in Voltage Valley in Lordstown, near Youngstown, Ohio. GM ceased production on March 6, 2019 and later sold the site to Lordstown Motors for $20 million (and loaned $40 million).
The 54-year-old plant consists of three main facilities: Vehicle Assembly, Metal Center, and Paint Shop. At its best times, the plant was producing some 400,000 cars annually.
Since then, Lordstown Motors was working on its all-electric Lordstown Endurance, an upgrade of the plant to handle EVs and has entered NASDAQ through a merger with a special purpose acquisition company (SPAC) - DiamondPeak Holdings Corporation (DiamondPeak).
The main problem for Lordstown Motors (aside from developing the product) was the capital (or rather lack of it), as launching a competitive electric vehicle, especially an electric pickup truck, is very capital intensive.
Now, as the plan to succeed on its own has filed, it appears to us that Lordstown Motors has decided to sell the plant to a partner that will take care of the manufacturing, and simply contract the production of the vehicle.
According to the agreement, the hub motor assembly line and battery module and pack lines are excluded and will remain in Lordstown Motors' hands.
"As previously disclosed, on September 30th Lordstown Motors entered into an Agreement in Principle, or AIP, with an affiliate of Hon Hai Precision Industries, also known as Foxconn, to work jointly on Lordstown Motors’ electric vehicle programs in the production and assembly plant in Lordstown, Ohio. Shortly after the AIP, and as a sign of confidence in the partnership, Foxconn purchased $50 million of common stock directly from Lordstown Motors at a price of $6.8983 per share. The definitive Asset Purchase Agreement (“APA”) implements the terms of the AIP and provides as follows:
- LMC has agreed to sell to Foxconn the Lordstown facility, excluding certain assets such as the hub motor assembly line and battery module and pack lines, for $230 million.
- Foxconn has agreed to make a down payment of the purchase price of $100 million by November 18th, and subsequent down payments of $50 million on each of February 1st, 2022 and no later than April 15, 2022. The balance of the purchase price will be paid at closing.
- The parties have agreed to pursue a contract manufacturing agreement for the Endurance pickup truck, which must be entered into before closing—currently targeted by April 30th.
- Lordstown Motors and Foxconn will pursue a joint venture agreement to co-design and develop vehicle programs for the global commercial fleet market, using the MIH open platform. Lordstown and Foxconn would have the right to commercialize these new EV programs in North America and internationally.
- Upon the closing, Foxconn will receive 1.7 million warrants to acquire Lordstown common stock, exercisable for three years, at a price of $10.50 per share.
The closing of the transactions contemplated by the APA is subject to closing conditions, including entry into the contract manufacturing agreement, regulatory approvals and other customary closing conditions."
As we understand, Foxconn - one of the largest electronics manufacturers in the world - intends to use the plant as its bridgehead in the U.S.
The company has big plans related to electrification, and would like to produce EVs. In Lordstown specifically, Foxconn intends to produce EVs for small OEMs (without plans) and provide parts (hardware and software solutions).
"The Foxconn partnership will unlock the tremendous potential of the Lordstown plant by getting it to scale faster. At 6.2 million square feet, and 640 acres, the Lordstown Complex was one of the largest internal combustion engine automotive plants in North America. It is now being converted into a state-of-the-art EV manufacturing facility. Foxconn has an excellent opportunity to fill the plant, having already announced that the Fisker PEAR program is intended to be manufactured in Lordstown."
Foxconn has developed the MIH open platform so there is a potential that we will see a lot of small OEMs joining the project.
"Lordstown Motors and all OEMs whose vehicles are built at the plant will benefit from the increased capacity utilization, possible use of common components and shared overhead costs. The use of shared space and the MIH open platform provides smaller, more specialized OEM’s the opportunity to achieve the benefits of scale without being a large, fully integrated automaker."
We will see how it will pay off for Lordstown Motors in the long term. The press release promises a cost reduction:
"Finally, the partnership with Foxconn should enable Lordstown Motors to significantly reduce its raw material, component and other input costs. As one of the largest contract manufacturers globally, Foxconn will bring to bear the purchasing power, supply chain network, and logistics capabilities to significantly reduce vehicle production costs and mitigate supply chain risk. LMC also stands to benefit from Foxconn’s expertise in hardware software integration – critical to EVs – given their experience as a multinational electronics manufacturer. "
Finally, it seems that the Taiwanese manufacturer might be in the U.S. sooner than we previously anticipated.
Young Liu, Chairman of Hon Hai Technology Group, commented:
“This partnership marks the commencement of integrating our resources with Lordstown Motors to develop Ohio into Hon Hai’s most important electric vehicle manufacturing and R&D hub in North America. As we look to inject Hon Hai’s software and hardware capabilities in the information and communications industry with the wealth of automotive experience that resides in this town and our partners, we will be able to provide customers with more real-time and efficient Electric vehicle products.”
Daniel Ninivaggi, Chief Executive Officer of Lordstown Motors Corp., stated:
“We are happy to have formed a strategic partnership with a company as innovative and forward-thinking as Foxconn. I believe in their EV strategy and look forward to substantial collaboration in the future. In my view, this transaction provides LMC a better opportunity to fulfill its original mission of satisfying the growing demand for electric vehicles, particularly in the underserved commercial market, with a more flexible business model.”