According to a recent article from Bloomberg, the electric vehicle startup Lordstown Motors has a bit of good news after a tough few years: a new manufacturing partnership. Earlier this year, it’s CEO and CFO left the company after it was found that the company was behind schedule and possibly inflating its sales numbers. This isn’t the only EV manufacturer to face similar issues, but leadership paid the price.
The good-ish news is a $280 million deal with Foxconn to sell its only auto factory that it acquired from GM a few years back. The deal will lose them the factory, but they have agreed to lease back the space so that they can build the vehicles they need.
The accord gives both companies something they badly need. Lordstown Motors gets a partner that will hasten the startup’s move into large-scale production, which will help lower the high costs required to make EVs. Foxconn gets a plant in North America where it can build its open-source electric vehicle platform and do contract manufacturing for partners like Fisker Inc.
Lordstown is sitting on a hugely valuable plant, with little ability to manufacture. According to the New York Times, this kind of property swap and lease is standard practice for cash strapped companies.
[Lordstown] said it would continue to use the factory to make the Endurance by leasing back space from Foxconn if the sale was completed. Foxconn would then offer employment contracts to some Lordstown manufacturing employees. Troubled companies often resort to sale-leaseback deals as a way to raise cash.
It’s not clear how successful this arrangement will be for Lordstown, but their reasoning is informative.
“It’s less about a facility sale than a strategic partnership,” Lordstown Motors Chief Executive Officer Dan Ninivaggi said in an interview. “You have to find a way to get scale in the auto industry. Foxconn has a vision. They’ve got enormous capabilities in manufacturing and they will be able to fill that plant faster than we could.”
Lordstown needing money is straightforward enough, but Foxconn acquiring a factory in the U.S. is worth making a note of — a company famous for building iPhones in Asia is investing in manufacturing within the U.S. It speaks to the huge car market in America, but also that manufacturing, and auto manufacturing at that, is still very much a viable industry in the states; besides traditional U.S. automakers (some of which manufacture in Mexico), Honda and Toyota both make a lot of cars in the U.S.
Check out the Bloomberg article for the whole story. And even if the principle companies aren’t of particular interest, the implications of this deal, and the practice of property swap and lease are worth investigating further.