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Lordstown Motors Stock: Short Sellers Scramble as EV Stock Soars …

Lordstown Motors Corp to Start Electric Truck Production in Q3

Long-suffering Lordstown Motors Corp (NASDAQ:RIDE) shareholders have reason to cheer these days.

The electric vehicle (EV) maker recently announced that it closed on a deal to sell its factory in Lordstown, OH to Hon Hai Technology Group (better known as Foxconn), a Taiwanese contract manufacturer. (Source: “Lordstown Motors and Foxconn Close Asset Purchase Agreement and Enter into JV Agreement for MIH Based EV Development,” Lordstown Motors Corp, May 11, 2022.)

The sale of the auto plant injected much-needed liquidity into the embattled startup. Lordstown Motors, which went public in October 2020, had nearly run out of the cash it raised through a special-purpose acquisition company.

Lordstown Motors Corp first announced its strategic partnership with Foxconn in November 2021.

At the time, Lordstown Motors said it would sell its Ohio facility—excluding certain assets, including its hub motor assembly, battery module, and battery pack lines—for $230.0 million. (Source: “Foxconn and Lordstown Motors Enter Into a Transformative, Strategic Partnership,” Lordstown Motors Corp, November 10, 2021.)

Under the deal, Foxconn will manufacture Lordstown Motors’ full-size electric pickup truck, the “Endurance.” Production will start in the third quarter of this year, with deliveries starting in the fourth quarter.

The new joint venture, called MIH EV Design LLC, will be 55% owned by Foxconn and 45% by Lordstown. (Source: Lordstown Motors Corp, May 11, 2022, op. cit.)

Lordstown Motors purchased the 6.2-million-square foot facility in 2019 from General Motors Company (NYSE:GM) for $20.0 million plus 7.5 million shares of RIDE stock in exchange for equity value of $75.0 million. Since then, Lordstown Motors Corp has plowed $240.0 million into getting the factory ready to build its pickup trucks. Building EVs is expensive even when things are running smoothly. Add in a supply chain crunch and it’s even more costly.

The deal between Lordstown Motors and Foxconn came down to the wire. It had to close on May 18. The original terms would have seen the deal close by May 14, but the two parties agreed to an extension.

If the deal hadn’t happened, Lordstown Motors Corp would have needed to repay the $250.0 million in down payments that Foxconn had made since last November. As of March 31, 2022, however, Lordstown only had $203.6 million in cash.

Now that the deal has closed, Foxconn will make a final payment of $30.0 million, plus $27.0 million to cover some of Lordstown Motors’ costs.

Lordstown Motors Corp isn’t out of the woods yet.

Adam Kroll, the company’s CFO, said that, even with the closing of the deal, Lordstown Motors will probably need to raise an additional $150.0 million by year-end because of deferred tooling costs. That’s a big number, but down from the initial estimate of $250.0 million. (Source: “Lordstown Motors Sinks on Delay in Finalizing Foxconn Plant Deal,” BNN Bloomberg, May 9, 2022.)

RIDE Stock’s Recent Performance

News of the joint venture with Foxconn sent Lordstown Motors stock soaring on May 12, up by as much as 58% from the previous day’s close.

That was good news for Lordstown Motors Corp investors who’ve only seen RIDE stock fall deeper into the red since February 2021.

As of this writing, Lordstown Motors stock is down by:

  • 18% over the last month
  • 25% over the last three months
  • 60% over the last six months
  • 34% year-to-date
  • 68% year-over-year

The big jump in RIDE stock wasn’t welcome news to short sellers, however. At the time of this writing, short interest in Lordstown Motors stock represented 18.9% of the float and had nearly six days to cover. 

Lordstown Motors Corp‘s First-Quarter Financial Results

For the first quarter of 2022, Lordstown Motors reported a loss of $89.6 million, or $0.46 per share. That was an improvement from its first-quarter 2021 net loss of $125.0 million, or $0.72 per share. (Source: “Lordstown Motors Reports First Quarter 2022 Financial Results,” Lordstown Motors Corp, May 9, 2022.)

The company hasn’t shipped any trucks yet, so it has no revenue to report. It ended the quarter with a cash balance of $204.0 million.

Lordstown Motors Corp’s management reaffirmed their goal of starting commercial production of the Endurance in the third quarter of this year. The company has an initial production capacity of approximately 500 vehicles.

Commercial deliveries of the Endurance are expected to begin in the fourth quarter.

Analyst Take

As explained above, Lordstown Motors Corp is an EV company that specializes in electric pickup trucks.

Its joint venture with Foxconn should provide it with some financial breathing room, at least enough to get it to the third quarter, when production is set to start. If that does happen, optimistic investors will probably provide the company with enough capital to help it develop additional vehicles.

As I said earlier, Lordstown Motors Corp isn’t out of the woods yet, but it’s on its way. As such, RIDE stock could go up in value.

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