The Supply Chain Matters blog highlights a fairly significant development related to the potential production of electrically powered automobiles and pick-up trucks in the United States.

 

The Announcement

Yesterday, electric pick-up truck producer Lordstown Motors indicated that the company has entered into a nonbinding agreement to sell its namesake production facility to global contract manufacturing services provider Hon Hai Technology (aka Foxconn Technology Group). The deal could result in both companies working jointly on Lordstown Motors’ electric vehicle programs within the massive 6.2 million square foot production and assembly plant in Lordstown, Ohio. The reported purchase price is $230 million.

Foxconn reportedly will further invest $50 million in Lordstown Motors common stock as a specified price.

According to the published announcement:The goal of the partnership is to present both Lordstown Motors and Foxconn with increased market opportunities in scalable electric vehicle production in North America.”

That statement alone is significant for the U.S. automotive industry and its evolving EV supply networks.

Further outlined is that Foxconn would acquire the Lordstown facility, with the exclusion of Lordstown Motors’ hub motor assembly line, battery module and packing line assets, certain intellectual property rights and other excluded assets. Additionally, the companies would undertake negotiations for Foxconn to be designated as a contract manufacturer for the planned electrically powered Lordstown Endurance full-size pickup truck at the Lordstown facility.

The negotiations would provide consideration for Foxconn to be considered for manufacturing services for future Lordstown Motors vehicle programs.

Following the closing, the announcement indicates that under the definitive agreements, Lordstown Motors would enter into a long-term lease for a portion of the existing facility for its Ohio-based employees, and Foxconn would offer employment to agree upon Lordstown operational and manufacturing employees. This latter wording is a framework for a classic contract manufacturing outsourcing agreement that Foxconn would typically perform for high tech and consumer electronics clients.

According to executive statements, the definitive purchase agreement is expected to be reached by the end of October and the overall closing of this deal could be consummated by April, 2022.

 

Additional Background and Perspectives

Beyond the eye-catching headline of Apple’s go-to iPhone contract manufacturer negotiating for a significant electric vehicle manufacturing capacity presence directly in the U.S. is a broader unfolding strategy.

Start-up Lordstown Motors managed to acquire the former General Motors Lordstown facility in 2019 in an attractive $20 million deal when the Trump Administration and local officials pushed back on the potential closing of the facility.

The EV vehicle designer has since encountered a significant set of challenges in delayed design development and other matters that has since called into question whether a plan to start limited pre-production by the end of this month could be accomplished.

The company has had to warn investors that its cash burn rate is faster than planned and recently had to add a going-concern notice in its financial disclosure, an indication of uncertainty to sustain business in the coming year. The company has further been accused of overstating the number of pre-orders received for the Endurance model. In June, there was a disclosure that the Securities and Exchange Commission was investigating its business followed by the resignation of the company’s founder and then CEO. There is since been a probe by the U.S. Justice Department. A new CEO, Daniel Ninivaggi, a former associate to well noted activist investor Carl Icahn, was appointed the company’s new CEO in August, and he helped in the orchestrating of this deal.

With that background it would seem that a deal had to made in order to get the vehicle to market.

The Foxconn Perspective

Commenting on the agreement Young Liu, Chairman of Hon Hai Technology Group, indicated in-part:

This mutually beneficial relationship is an important milestone for Foxconn’s EV business and our transformation strategy. I believe that the innovative design of the Endurance pickup truck, with its unique hub motors, delivers an advantageous user experience and has manufacturing efficiencies. It will undoubtedly thrive under our partnership and business model.

Supply Chain Matters has provided readers a number of prior commentaries on Foxconn’s ongoing strategic and tactical moves to make presence in the EV sector.

In January, this blog highlighted a published Reuters report indicating that China based automaker Geely Holding Group and Foxconn had announced a strategic partnership to build automobiles for various branded automakers. In a joint statement each of the partners reportedly indicated that they would have half ownership interest and provide expertise services related to electric automobile volume manufacturing.

In February, the contract manufacturer announced a deal to produce vehicles for luxury electric vehicle designer Fisker. The deal involved the production of more than 250,000 vehicles annually and further led to high interest in exactly where the vehicles were to be produced. Fisker’s CEO Henrik Fisker at the time indicated that there was a good chance that initial production could be at Foxconn’s Wisconsin production complex. That complex has had a disappointing history of announcements regarding a significant presence for this contract manufacturer in U.S. high tech components supply network needs.

In March, we highlighted a report published by Verge where Liu confirmed that the contract manufacturer was considering producing electric powered vehicles at the Wisconsin site and further hinted at possibly additional partnerships with U.S. based companies. A month later, the contract manufacturer formally scaled-back the electronic manufacturing presence for the Wisconsin facility and called into question as to whether EV production was an option.

If this deal involving Lordstown is consummated, Foxconn will garner a considerable truck and automotive EV production capability and conceivably supply network presence at an attractive price point. However, from our lens, there are some obstacles needing to be overcome including the hiring of designated Lordstown manufacturing and operational workers in a facility that was previously unionized. The contract manufacture’s prior tendencies to overpromise and under deliver when it comes to U.S. manufacturing deployment plans is another uncertainty that needs to play out, as is the Biden Administration’s declared plans to make EV manufacturing and supply chain capabilities a strategic priority.

Indeed, this is a development that will garner a lot of added visibility in automotive industry supply chain circles in the weeks and months to come. It further reinforces the now inevitable overlap of automotive and high tech industry supply networks.

 

Bob Ferrari

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