US electric pickup truck startup Lordstown Motors (LMC) previously announced that because Foxconn is suspending further investments, it could be facing bankruptcy. LMC claimed that this move will affect its operations, while Foxconn emphasized that it is doing so because Lordstown has been unable to maintain its share prices above US$1 for a long time. This violated the content of the investment agreement between the two, hence why it issued a formal letter requesting LMC to address this violation issue.
Lordstown's profit performance (in millions of US$)
Source: Bloomberg, compiled by DIGITIMES, May 2023
This problem is not limited to Lordstown. Other EV startups like Rivian and Fisker have seen their stock prices hit new peaks after their IPOs, only to later see their prices tank when unfavorable information like mass production and shipment scale not meeting expectations surfaced.
Compared to other companies, Lordstown's situation is even more serious, which has led to Foxconn suspending further investments based on the investment agreement. However, Foxconn has also expressed a willingness to negotiate with LMC, showing that the two sides haven't quite reached the end of their partnership.
Industry sources pointed out that Foxconn's investment in LMC is mainly because of LMC's production line in Ohio, which is the most valuable part of LMC. To acquire that production line, Foxconn invested in LMC by purchasing common and preferred stock of Lordstown via its subsidiary. Despite that, Foxconn also set up a firewall to ensure that future investments won't be too big to fail, which has led to the current dispute.
EVs are one of the crucial future directions of global industrial development, which in turn has attracted a lot of entrepreneurs to join the sector. With Tesla's massive successes, every startup EV maker aims to be the next Tesla.
However, to differentiate and position themselves on the market, EV startups tend to spend a lot of their capital on long R&D processes for their prototype car. By the time the prototype car is completed and ready to enter mass production, most are faced with the dilemma of insufficient capital.
In addition, with so many EV startups already in the market and the EV frenzy slowly cooling off, the market has become more cautious about investing further in EV startups to avoid creating a bubble. That's one of the reasons why Foxconn put a firewall in its investment agreement with LMC.
It's because of these issues that Foxconn chairman Young Liu believes that in the future, the CDMS (contract design and manufacturing service) business model will be mainstream in the EV sector.
Adhering to the form of professional manufacturing, through a standardized and modular open platform like Foxconn's own MIH, startups can not only put their creative ideas into practice through modular combinations but also significantly reduce the time and cost required for R&D. The funds retained can be used for subsequent services like production and maintenance, both of which require sufficient financial support.
