Shares of embattled electric vehicle maker Lordstown Motors (NASDAQ:RIDE) are up 13% in today’s pre-market session after the company announced a deal that will see Taiwan-based Foxconn buy its vehicle assembly plant in Ohio for $230 million.
News of the assembly plant sale comes as a much needed lifeline for Lordstown Motors, which has struggled to meet production and financial targets. Its share price has fallen 73% this year before today’s upward reversal.
RIDE stock ended trading yesterday at $5.56 per share. Analysts praised the deal when it was announced, saying it will give the cash-strapped electric vehicle startup a desperately needed capital infusion. It also gives Foxconn a jump-start on producing its own electric trucks.
What Happened With RIDE Stock
According to a joint statement, Foxconn acquired $50 million of common stock at $6.90 per share. As a result, Foxconn will now make a down payment of $100 million on the factory by Nov. 18. Then, it will make two payments of $50 million each in February and April.
Foxconn will then get 1.7 million warrants to buy RIDE stock at $10.50.
Additionally, Foxconn has agreed to pursue a manufacturing agreement to assemble Lordstown Motors’ first vehicle, an electric pick-up truck named Endurance. This deal will allow Lordstown Motors to offload its 6.2-million-square-foot manufacturing plant in Lordstown, Ohio, which is largely sitting idle.
News of the agreement with Foxconn, and the cash injection, come as Lordstown Motors prepares to announce its third-quarter financial results after markets close today. In its previous quarterly report, Lordstown Motors announced a net loss of $108 million, or a loss of 61 cents per share, which was much wider than a loss of 11 cents per share a year earlier.
Why It Matters
Providing Lordstown Motors with an immediate payment is critical. That is because, following a short-seller report alleging that it was faking preorder numbers, RIDE is under investigation by both the U.S. Securities and Exchange Commission and the Department of Justice. The accusations and investigations have led to the resignation of several senior executives at Lordstown Motors, including President Rich Schmidt, who stepped down yesterday ahead of the Foxconn deal being announced.
Foxconn is currently the world’s largest electronics manufacturer and this latest deal could help Lordstown Motors reduce its raw material and component costs. However, Foxconn also has a history of overpromising and underdelivering when it comes to the U.S. market. One example of this is when Foxconn promised to invest $10 billion in a manufacturing facility in Wisconsin. It eventually scaled that investment back and failed to create the promised number of jobs.
What’s Next for Lordstown Motors
The immediate next step is for Lordstown Motors to report Q3 earnings when markets close today.
Those results are expected to show further losses. While the Foxconn deal helps provide Lordstown Motors with some temporary financial relief, it doesn’t change the underlying story at the company, which continues to be negative. Fraud investigations, stalled production, compounding losses, and senior management resignations do not paint a rosy picture. As such, investors should continue to steer clear of troubled RIDE stock, whose trajectory has been all downhill this year.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
