Lordstown Motors Corp., the electric truck start-up company, saw its shares tank by 19% after pushing back the deadline to sell its assembly Plant in Ohio to Hon Hai Precision Industry Co Ltd of Taiwan, also popularly known as Foxconn.
The impact of postponing sale transaction
As per Bloomberg News, the company said on Monday that it was postponing the closing of the sale transaction of its plant, which earlier belonged to General Motors Co. The Foxconn transaction will now happen on May 18. Lordstown also said that it would delay investments in tooling that will help to lower the production cost of the EV trucks.
Foxconn has paid $200 million towards the down payment out of the total purchase price of $230 million for the Ohio plant.
The postponement is the second delay after the deal was initially supposed to close last month. If the deal does not close on May 18, and there is no further extension of the deadline, then Lordstown will have to refund the money back though it has said that it does not have the cash to pay the money back.
In a conference call with analysts, Dan Ninivaggi, the CEO of Lordstown, said they had a constructive discussion with Foxconn. According to him, the deal is complex, and it is taking longer than expected. The good sign is that Foxconn has agreed to extend the repayment deadline.
The stock recorded a low of $1.55 and recovered to $1.69 at 10.25 am on Monday in New York, still a drop of 11 %. This year the stock has already declined by 50%.
Both Lordstown and Foxconn are working towards completing the agreement, including a contract manufacturing alliance with Apple Inc. iPhone Taiwanese makers and plans to roll out development for future vehicles.
Chief Financial Officer of Lordstown, Adam Kroll, told the analysts that the company would require to raise $150 million this year in cash. This is lower than the initial plan year in raising $1250 million because of deferred investments in the tooling project. However, without tooling, the cost of building battery-powered endurance trucks will exceed the sale price.
The EV start-up has no revenues yet, and they indicated that the pickup mass production would be delayed on Monday. The production is expected to start in the third quarter to build 500 trucks initially; the delivery of some of them won’t begin until 2023.
Based in the northeastern Ohio village bearing the same name, Lordstown has lost 46 cents a share in the last quarter and was a penny more than the analyst’s estimates.
