Deep Looks: Lordstown Motors at risk of bankruptcy

 

1 On Monday, Ohio-based Lordstown Motors revealed through an SEC filing that it faced the risk of bankruptcy if a previously-announced investment from Foxconn did not occur, as the manufacturer expects the EV company to resolve its delisting notice from Nasdaq. Lordstown's shares are under the listing minimum of $1 for more than 30 consecutive trading days ($0.42 per share on Wednesday morning). Lordstown released a statement expressing that Foxconn's "course of conduct has resulted in material — and what is becoming irreparable — harm to the company." Foxconn committed $47.3M in exchange for 26.9 million shares of Class A common stock contingent on approval by the Committee on Foreign Investment in the United States. CFIUS cleared the deal on April 25, and according to the document, the manufacturing company has until May 8 to close the transaction. Foxconn's letter to Lordstown gave the EV company 30 days to get its stock above the Nasdaq minimum; thus, Lordstown is proposing a reverse stock split to get its shares above the threshold, which would be subject to shareholder approval at its annual meeting on May 22. The EV company, being dependent on Foxconn, will head to bankruptcy unless it can regain a sufficient share price, negotiate with Foxconn pending the reverse stock split, or secure alternate manufacturing partners and funding sources. Lordstown's share price dropped under $1 days after Feb. 23, when it issued a voluntary recall of the Endurance to address an electrical connection issue that could result in a loss of propulsion while driving. According to the company, the recall involved 19 vehicles, some of which may have been in utilization by Lordstown; however, it also involved a production pause. Lordstown has been under financial stress, stemming from a ~$410.4M net loss in 2022. Foxconn began manufacturing the EVs in Q2 2022, resulting in $194,000 in net sales but $635,000 in production costs for Lordstown. The company had delivered a total of 39 units before restarting manufacturing in April.  As news broke of Lordstown's new troubles, the CEO of Micromobility.com (formerly Helbiz), Salvatore Palella, tweeted that the shared e-scooter operator would be interested in using the EV company's facility. The micro-mobility company had also previously received delisting notices from Nasdaq before renaming itself and listing under a separate ticker; however, it has fallen to $0.91 from $6.20 at the end of March. Even if Micromobility.com manages to stay above $1, Foxconn acquired Lordstown's factory in a previous transaction of $230M announced in May 2022, and although it set up a production development joint venture, the Taiwanese company holds the majority stake in the new production entity, MIH EV Design LLC (55%). This is a separate entity from Lordstown itself, for which Foxconn was seeking a 19.3% stake through a second deal. Thus, even if Foxconn's acquisition of Class A shares falls through, a new manufacturer or renter of the space would still require negotiation with Foxconn.

2 Fisker announced its first model, the Ocean, will use swappable batteries. The EV company expects its battery replacement systems to be in operation by Q1 2024 in collaboration with Ample, which it sees as a faster approach to get to market versus building a proprietary system. Ample tested its stations in New York City in 2021, when it claimed that it could provide station coverage to "an entire city within six weeks." Fisker's new approach to batteries, albeit unique to the U.S., is a common occurrence in China. NIO began operating battery swap stations in 2018, and to date has 1,342 stations in China. The company plans to install 1,000 this year, of which 900 would be able to exchange 408 batteries per day, a 30% increase in swaps versus its second-generation stations. In January, NIO performed 50,000 battery swaps in a single day. Earlier this year, NIO began expanding in Germany, Norway, and the Netherlands, where it is also building a battery-swapping station network. Fisker is also planning to extend its network to Europe, where it is currently manufacturing the Ocean SUV through Magna International in Austria.  While it remains to be seen whether EV adopters in the U.S. and Europe opt for the battery-swapping alternative rather than owning their own batteries, in April 2022, NIO began to offer its battery-swapping customers the option of purchasing their own batteries based on feedback from its battery-as-a-service customers. Yet, the Chinese EV maker generated $545.4M under the "Other sales" category in 2022, which includes battery swapping services and subscriptions. Fisker may be looking to NIO's performance to secure recurring revenue beyond unit sales, perhaps as an add-on through the Flexible Lease program, which is launching in H2 2023. Another option for Fisker would be to target enterprise customers for the battery-swapping subscriptions, as it currently allocates part of its production to an order by its manufacturer, Magna.