UPDATE: Lordstown Motors Challenged by Costs, Quality Issues
LORDSTOWN, Ohio – Electric-vehicle manufacturer Lordstown Motors Corp. cautioned Monday that it could “pause” production of the Endurance pickup this year should it not find a partner to co-develop its flagship vehicle.
“Should we not identify a partner in the coming months, we may decide to pause commercial production of the Endurance until a partner is identified,” Edward Hightower, president and CEO, said during a conference call discussing the company’s 2022 year-end and fourth quarter earnings.
Hightower said as it stands, the bill of material cost to produce the Endurance is materially higher than its sale price.
While the company has an investment agreement with Foxconn to develop future vehicles, it does not have one for the Endurance.
“It’s an upside down margin on each one,” Hightower said of the Endurance. “We believe the most prudent decision is to bring on a partner.”
Discussions with potential partners are ongoing, he added.
According to documents filed with federal regulators this morning, Lordstown Motors continues to express “substantial doubt about our ability to continue as a going concern. If we are unable to raise substantial additional capital in 2023, our ability to produce the Endurance and develop future vehicle programs will be significantly scaled back or curtailed.”
Still, the company has been able to manage its spending, documents show. Lordstown Motors ended the year with $221.7 million in cash, significantly exceeding its previous outlook, the company reported.
The statements come on the heels of a voluntary recall the company initiated last month that has already led Lordstown Motors to temporarily halt production of the Endurance. The recall affects 19 vehicles.
The recall initially covered a faulty electrical component in the Endurance that could cause it to lose propulsion. New vehicles are now being retrofitted with an updated component, Hightower said.
However, since the recall, Lordstown Motors was informed by one of its suppliers that a braking system component in the vehicle did not meet specifications, Hightower added.
“They have since supplied us with corrective parts, and we have filed a voluntary recall to address this issue as well,” he said.
Suppliers have also provided updated components to remedy other post-launch quality issues with the Endurance, he said.
“The company is diligently working with suppliers on the root cause analysis of each issue and potential solutions, which in some cases may include part design modifications, retrofits and software updates,” the company said.
Hightower said the company would announce “in the coming weeks” when it would resume production of the Endurance.
“Performance issues are often discovered as an entirely new vehicle with several new technologies begins operating in new and different environments by customers,” the company said in a news release this morning.
As of February 2023, Lordstown Motors has completed or is in the process of completing approximately 40 trucks, the company said. A total of six vehicles have been sold.
Lordstown Motors plans to produce a first batch of 500 vehicles this year, Hightower said.
The company launched production of the Endurance in late September 2022 and began commercial deliveries in November. Lordstown Motors produces the Endurance at Foxconn’s plant in Lordstown.
“We now have line of sight to the resolution of the issues that resulted in the production pause and voluntary recalls, and in the upcoming weeks expect to announce when we will resume production and deliveries,” the company said.
Last week, The Business Journal reported that Lordstown Motors first encountered problems with the Endurance a month before the recall, according to documents filed with the National Highway Traffic Safety Administration. Filings show that the company had already ceased production of the Endurance before the reported incidents.
The company determined that a defective component manufactured by a Chinese-based supplier caused some of the pickups to lose propulsion, the NHTSA filing said. In at least one case, the truck would automatically slide out of drive and into neutral and then fail to restart, the documents said.
Lordstown Motors also announced it was working closely with Foxconn on a second vehicle.
“The next platform and vehicle program are key to Lordstown Motors’ long-term business strategy and are becoming a greater portion of our company’s focus,” Lordstown Motors said.
Foxconn purchased Lordstown Motors’ plant last May for $230 million. Both parties have signed a contract manufacturing agreement to produce the Endurance. However, all the costs of developing the vehicle are shouldered by Lordstown Motors.
The companies have also agreed to work together on future vehicles based on Foxconn’s Mobility-In-Harmony, or MIH, platform.
The new vehicle will likely source key components and subsystems from Foxconn and MIH Consortium members and be built in the Foxconn EV Ohio assembly plant in Lordstown.
“Our asset-light business model and collaboration with the Foxconn EV ecosystem, including MIH, will provide the opportunity for Lordstown Motors to create winning EVs that are tailored to the needs of customers that use them for various work applications, while gaining the cost benefits of scale,” Hightower said.
During the fourth quarter of 2022, the parties converted a previous $100 million joint venture into a direct investment from Foxconn in Lordstown Motors of up to $170 million, $52 million of which was funded in November 2022.
This investment is targeted for new product development between Foxconn and Lordstown Motors. It does not include financing production of the Endurance.
The initial Foxconn funding consisted of $22 million of Lordstown Motors Class A common stock to be used for general corporate purposes and $30 million of our Series A preferred stock limited to funding development and design activities for a new electric vehicle program in collaboration with Foxconn and its EV ecosystem as well as related overhead.
The remaining investment of up to $117.3 million consists of $47.3 million in common stock and up to $70.0 in preferred stock.
Upon completion of the investments, Foxconn is expected to hold all of LMC’s outstanding preferred stock and nearly 18% of our common stock on a pro-forma basis, and will have the right to designate two members to be added to LMC’s board of directors.
The company reported Monday that it posted a net loss of $102 million during the fourth quarter of 2022 and a net loss of $282.4 million for fiscal year 2022.
Copyright 2023 The Business Journal, Youngstown, Ohio.