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November 12, 2021

Hon Hai unveils M&A plans for Ohio EV plant

The Hon Hai purchase of EV truck maker Lordstown Motors appears to be all but a done deal.

By Graeme Roberts

Hon Hai Technology announced it had signed a final agreement to acquire the bulk of the assets of US electric vehicle (EV) company Lordstown Motors (LMC).

The Taiwan company, also known as Apple’s main contract manufacturer Foxconn, had invested heavily in the last two years to become a significant player in the global EV market.

It had developed the MIH dedicated EV platform complete with powertrain which it offered to potential customers and was in the process of establishing an effective supply chain.

Earlier this year Hon Hai established a new EV division called Foxtron Vehicle Technologies which, it said, employed “several thousand” people.

LMC was established in 2018 to take over a redundant vehicle assembly plant in Lordstown, Ohio, from General Motors in the hope of establishing a viable EV factory.

The plant, built in 1996 with annual production capacity of 300,000 vehicles, produced its last Chevrolet Cruze in March 2019.

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The company had since developed the battery-powered Endurance pickup truck.

Hon Hai said it had “entered into a definitive asset purchase agreement regarding LMC’s facility in Lordstown, Ohio”.

This followed a preliminary agreement with LMC at the end of September “to work jointly on LMC’s electric vehicle programmes at the Lordstown plant”.

Soon after this, Hon Hai acquired US$50m of shares in LMC priced at just under US$6.9 per share.

The agreement implemented the terms of the preliminary deal and provides:

• LMC agreed to sell to Hon Hai the Lordstown facility, excluding certain assets such as the hub motor assembly line and battery pack and module lines, for US$230m.

• Hon Hai has agreed to make a down payment on the purchase price of US$100m by 18 November, followed by two payments of US$50m by 15 April, with the balance to be paid on completion of the deal which is scheduled for 30 April 2022.

• The parties agreed to pursue a contract manufacturing agreement for the Endurance pickup truck which must be entered into before competition of the deal.

• LMC and Hon Hai to sign a joint venture agreement to co-design and develop vehicle programmes for the global commercial fleet market, using the MIH open platform. LMC and Hon Hai have the right to commercialise these new EV programmes in North America and internationally.

• On competition of the deal, Hon Hai would receive 1.7m warrants to acquire LMC common stock, exercisable for three years, at a price of US$10.50 per share.

Hon Hai suggested the partnership would “unlock the tremendous potential of the Lordstown plant by getting it to scale faster. The Lordstown complex had one of the largest internal combustion engine plants in North America which is now being converted into an EV manufacturing facility”.

Hon Hai said it had also agreed to produce forthcoming Fisker EVs at Lordstown which would help lift capacity use.

“The use of shared space and the MIH open platform provides smaller, more specialized OEMs the opportunity to achieve the benefits of scale without being a large, fully integrated automaker.”

Hon Hai also suggested it would help LMC reduce significantly its raw material, component and other input costs.

“As one of the largest contract manufacturers globally, Hon Hai will bring to bear its purchasing power, supply chain network and logistics capability to reduce vehicle significantly production costs and mitigate supply chain risk. LMC also stands to benefit from Hon Hai’s expertise in hardware software integration, which is critical to EVs, given our experience as a multinational electronics manufacturer.”

Hon Hai Technology chairman Young Liu said in a statement: “This partnership marks the commencement of integrating our resources with LMC to develop Ohio into Hon Hai’s most important electric vehicle manufacturing and R&D hub in North America.

“As we look to inject Hon Hai’s software and hardware capability in the information and communications industry, with the wealth of automotive experience that resides in this town and our partners, we will be able to provide customers with more real-time and efficient EV products.”

LMC CEO Daniel Ninivaggi said: “We are happy to have formed a strategic partnership with a company as innovative and forward thinking as Hon Hai. I believe in their EV strategy and look forward to substantial collaboration in the future. In my view, this transaction provides LMC a better opportunity to fulfill its original mission of satisfying the growing demand for electric vehicles, particularly in the underserved commercial market, with a more flexible business model.”

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