(This story has been updated with additional information and analyst comments.)
Troubled battery-electric startup Lordstown Motors didn’t offer up great news with its Q1 earnings report.
The company reported a net loss of $89.6 million in the first quarter, or 46 cents per share, versus its $125.2 million loss, or 82 cents per share in the same quarter last year as the company burned through $91 million.
The company ended the quarter with about $204 million in cash, including a major liability: $150 million from Taiwanese electronics contract manufacturer Foxconn, which will own and operate the Ohio plant for Lordstown. The deal hasn’t been fully consummated, and must close by May 18, when Foxconn will make a final $30 million payment, plus $27 million reimbursement for Lordstown’s costs.
Expectations on Wall Street were for a loss of 45 cents and a cash burn of $140 million, so the numbers were better than expected. Lordstown Motors also reiterated that production of its Endurance pickup is still scheduled to begin in the third quarter, a year later than originally predicted.
Lordstown Motors anticipates producing 500 units by the end of year — losing money on each unit. Even if production starts, the company faces an uphill battle against a slew of well-funded competitors.
“When you don’t have the name recognition that other companies do, you’re behind the eight ball at the start. Top that with the fact that there’s not a lot of buzz for Lordstown vehicles,” Sam Fiorani, vice president, Global Vehicle Forecasting at AutoForecast Solutions LLC. “But there is there is buzz for a bunch of different manufacturers who are either planning at the end of that size or anticipating to announce one.”
Will it happen?
By the company’s own admission, the Foxconn deal may not happen.
“The APA (asset purchase agreement) remains subject to closing conditions and may not be consummated,” adding later, “No assurances can be given that Lordstown Motors and Foxconn will enter into the agreements contemplated by the APA. … If the APA does not close, we will not have sufficient available cash to repay Foxconn’s down payments by the repayment deadline. As a result, Foxconn may exercise its rights under the APA, including, but not limited to foreclosing on its liens on some or substantially all of our assets.”
Of course, if the deal doesn’t close, and Lordstown folds as a result, Foxconn could get the former General Motors plant for a song. “If I were Foxconn that would that would be among my plans,” said Fiorani. “The plant is a significantly sized plant and ready to build vehicles. And if you’re Foxconn, and you want to to start a business of contract manufacturing for other manufacturers, it makes perfect sense to get a better deal, because nobody has significant contract manufacturing in North America.”
Despite the company’s prospects remaining unsettled and its share price declining nearly 10% to $1.72 in early trading Monday (and down from a 52-week in June of $16), executives remained optimistic.
“We made significant progress toward launching the Endurance during the first quarter, notwithstanding unprecedented supply chain challenges. Our highest priority remains getting the Endurance into customers’ hands,” said Daniel Ninivaggi, CEO of Lordstown Motors. “We also continue to work closely with Foxconn to close our pending transaction and strengthen our manufacturing and product development partnership.”
Cash still a problem
Until vehicles roll off the line, there’s no chance of revenue. But as the prospect of Endurance production nears, the company’s cash burn should accelerate, meaning the company needs more cash. It’s a problem that dogs every startup, but the company has suffered from some self-inflicted wounds.
“They’ve been on shaky ground from the beginning,” Fiorani said. “This is a company that was created out of the need to get rid of a plant.”
It didn’t help that in June, Lordstown Motors Chief Executive Officer Steve Burns and Chief Financial Officer Julio Rodriguez resigned after being accused by short-sellers Hindenburg Research that a number of orders it had for its vehicles were “fake,” followed by a warning there was “substantial doubt” it would have enough money to remain in business for the next year.
At the same time, the company dropped its delayed 10Q filing, revealing that it was sanctioned by the SEC. It was followed in July by federal prosecutors opening an investigation into the battery-electric truck maker and its claims. Yet that same month, the Lordstown secured $400 million in new funding from the New Jersey-based Yorkville Advisors Global LP hedge fund, agreeing to not engage in any short sales of the stock, nor will it hedge the shares.
In October, the company struck the deal with Foxconn. Whether it will close remains to be seen, as the company admitted today.
“Lordstown has been on the borderline of unrealistic for a long time,” Fiorani said.
Designing an EV is easy, hire a 16 year old for the styling and get the electrical design from Wikipedia. Then it went downhill!
They have already built over 50 beta trucks. Some for test drives by the media or sent to IIHS for test crashing in which they are expected to receive a 5-star rating.