Earlier this month, CNBC reported
that Foxconn is investing $170 million into Lordstown, an electric truck startup struggling for a long time.
Lordstown's management team notes that they're still on track to deliver their first Endurance truck by the end of the year. So far, they've only built 12 trucks and hope to build 50
in total by December 31. Since the firm finally started production of the trucks in the end of September, investors are hoping that the company can start recognizing revenue in Q4 2022.
Under the terms of the investment deal, Foxconn will distribute the $170 million in three phases. The first phase will give the company $52.7 million and this will give the company an 18% stake in the business and allows Foxconn to designate two members on the board. This capital injection is what Lordstown badly needs as the business is barely surviving with a low amount of cash. At the same time, Foxconn becomes the largest shareholder of Lordstown
At the time of writing, Lordstown has a $288 million market cap, giving Foxconn a 59% stake (assuming that the market cap remains the same throughout the three phases of capital injection).
The Bigger Picture
Why is Foxconn interested in making a deal with Lordstown, a struggling electric vehicle manufacturer? Is Foxconn a vulture capitalist, one that buys shares of struggling companies at rock-bottom prices and then does anything to create a short turnaround for the business and take profits during the quick recovery?
The answer is: no. Foxconn is taking advantage of this opportunity to expand its manufacturing business into electric vehicles. The manufacturer produces our iPhones and other Apple gadgets. And while Apple's revenues continue to grow, its sales volume is probably declining
. Foxconn wants to diversify away from Apple, away from producing consumer electronics and wants to get into the business of producing electric vehicles.
There are many startups that would prefer to outsource manufacturing of electric vehicles than try and create their own manufacturing capabilities in-house. Tesla tried to do it and because of it, they were burning huge sums of cash for many years and had issues with product quality.
Foxconn made a deal with Saudi Arabia's sovereign wealth fund to produce electric vehicles in Saudi Arabia
. That same sovereign wealth fund has a 63% stake in Lucid Motors
. With the Saudi government serious about becoming a major producer of electric vehicles, I wouldn't be surprised to see Foxconn see its fortunes swell as it helps Saudi Arabia become a major producer of electric vehicles.
And to show the seriousness of Foxconn's electric vehicle manufacturing ambitions, the CEO of Foxconn said last month that he wishes to one day produce electric vehicles for Tesla
. So far, neither Tesla nor Elon Musk hasn't responded to Foxconn about possible business opportunities.
Foxconn has the potential to take over Lordstown and make it its own electric vehicle brand. I wouldn't be surprised if they do decide to take over Lordstown one day. It would be more profitable for them to do so if Lordstown demonstrates profitability in the production and sale of electric trucks. At the same time, Foxconn has its joint venture with the Saudi sovereign wealth fund and in this joint venture, Foxconn will be co-owning an electric vehicle brand
with the Saudis. This would look something like Polestar, which is a joint venture between Volvo and Geely.
And while we're talking about Foxconn's EV ambitions, let's talk about Indonesia.
Another cool thing to note, Foxconn is looking to invest $8 billion
in Indonesia's electric vehicle sector. The money will be split among many five firms, like state-owned Indonesia Battery Corporation, energy firm PT Indika Energy, and Gogoro (a Taiwanese electric scooter company known for its battery swap technology).
To sum it up, Foxconn's investment in Lordstown is the biggest positive development that has happened to Lordstown since its fall from SPAC glory. I am confident that Foxconn will help Lordstown get back on its feet and position it for long-term success. This investment will help Lordstown ride the massive adoption wave of electric vehicles.
This investment in Lordstown is one of Foxconn's many steps toward becoming a major producer of electric vehicles. It's currently the largest producer of consumer electronics and it hopes to replicate this level of success with electric vehicles.
As for the fraud aspect, all I have to say is that the management team that did the fraud left and I believe they're currently being prosecuted by the SEC. The new management team has worked hard to root out any fraud and has run the business with integrity. The Lordstown Motors of the past isn't the Lordstown Motors of today.