Lordstown Motors ( RIDE -5.57% ) expects to deliver 500 units of its electric pickup truck, the Endurance, this year. The company sold its Ohio plant to Foxconn and is now working on a contract manufacturing agreement with the latter.
Let's look at the progress Lordstown has made so far, as well as its plans, to decide if the company's stock makes an attractive buy.
Moving toward production
After being the target of a short-seller's accusations, facing a Securities and Exchange Commission investigation, and losing its top leadership, Lordstown could finally be moving toward producing electric vehicles (EVs) -- but only if things go according to the company's plans. After selling its factory, the company is looking to contract the manufacturing of its Endurance pickup truck to Foxconn. However, the deal isn't finalized yet.
Image source: Getty Images.
In the company's fourth-quarter earnings release, CEO Dan Ninivaggi said, "Our ongoing discussions with Foxconn are focused on reaching a definitive agreement for the joint development of future vehicles off the MIH platform with an appropriate funding structure to enable us to raise the necessary capital for the success of our partnership."
MIH is Foxconn's Mobility-in-Harmony production platform. Foxconn also intends to produce Fisker's PEAR model in its Ohio plant and believes that automakers using Foxconn's platform will benefit from its scale and low overhead.
The contract manufacturing agreement with Foxconn isn't finalized yet, and with Lordstown's fragile liquidity position, Foxconn does seem to have greater negotiation power. For a little background, Lordstown issued a going-concern warning in June 2021 due to a lack of cash. Its position improved after raising cash by selling its Ohio factory.
The contract manufacturing agreement with Foxconn has been under negotiation for nearly four months. Regarding the delay in concluding the deal, Ninivaggi said during the earnings call, "And quite frankly, I am disappointed that we're not further along."
If the agreement with Foxconn is completed soon, Lordstown hopes to deliver around 500 Endurance pickup trucks this year. Investors would be looking forward to this development in the coming weeks.
This EV start-up faces key risks
Even if the deal with Foxconn is finalized, there are several key risks that Lordstown faces. To begin with, the pickup truck's quality and performance will be the most crucial factor in determining its success. Whether the trucks meet all the performance and safety parameters remains to be seen.
Secondly, when Lordstown Motors started, it was one of the early movers in the electric pickup segment. With all the ongoing troubles, it has fallen noticeably behind the competition. Ford will begin deliveries of its all-electric F-150 Lightning pickup this spring, and Rivian has already started deliveries of its pickup truck, the R1T.
Customers might not be too keen on trying the Endurance over others in the market unless Lordstown can offer compelling advantages in costs or features or both.
Finally, Lordstown says it still needs "substantial additional capital" before the commercial launch of the Endurance pickup. This is a big concern. The company says that an agreement with Foxconn is critical to help it raise the needed funds. In the absence of an agreement with Foxconn, there is no conceivable way for Lordstown to manufacture its vehicles. In other words, the company can go out to raise funds only if it has a production plan, which hinges on the Foxconn agreement.
Avoid this EV stock
Even though selling its factory has provided much-needed liquidity to Lordstown Motors, the company still faces considerable risk. It is in a difficult spot and needs way too many things to fall right to succeed. In short, the chances of Lordstown becoming a profitable EV maker look slim. Investors would do well by avoiding the stock for now.
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.
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March 03, 2022 at 09:02PM
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