24 June 2024
Electric vehicle battery startup Our Next Energy has entered a strategic partnership with Foxconn to keep the financially struggling startup afloat.
Our Next Energy recently told employees about the partnership with the Taiwan-headquartered manufacturing giant, sources close to the situation told Crain’s Detroit Business. Employees were told the partnership is aimed at accelerating the scaling of the U.S. battery industry and making Our Next Energy and Foxconn major players in it.
The deal involves Foxconn infusing cash and taking an ownership stake in the company, but it is not an acquisition, nor does it represent a change of control for the startup, one of the sources said. Further details of the structure are still being worked out.
An Our Next Energy spokesman declined to comment on “rumors or speculation” but provided a statement in response to an inquiry about the deal.
“As part of Our Next Energy’s efforts to build an American battery industry, the company engages with several potential partners on an ongoing basis to build a battery cell factory in Michigan and accelerate the country’s transition to electrification,” the company said in the statement. “Due to the confidential nature of these discussions, ONE does not comment on rumors or speculation about any potential partners.”
Foxconn did not return a request for comment.
A deal with Foxconn represents a path forward for a startup that went from unicorn status and media stardom to teetering on financial ruin. However, a tie-up with the contract manufacturing behemoth could raise major concerns.
Foxconn’s partnership with and investment in Lordstown Motors, another financially struggling startup, resulted in a messy legal fight and accusations that Foxconn sought to sabotage the EV manufacturer. Foxconn, which conducts the bulk of its business in China where it faces criticism over working conditions, also has been criticized for failing to follow through on job creation promises.
At the same time, Foxconn has become the world’s largest contract manufacturer through business deals that have been highly successful, such as with Apple, for whom it makes iPhones. EVs and energy storage are now key focus areas for the company.
Our Next Energy, heralded by politicians from former U.S. House Speaker Nancy Pelosi to Gov. Gretchen Whitmer, was considered one of the most promising bids to reshore manufacturing and reassert U.S. and Michigan automotive might. Its failure to launch has cast a cloud over ambitions for an independent U.S.-bred EV battery manufacturer in an industry dominated by China.
A partnership with Foxconn could keep that ambition alive. Whereas Our Next Energy has the valuable intellectual property and battery development know-how, Foxconn has supply chain and manufacturing expertise.
The strategic partnership would allow Our Next Energy to continue operating independently, with Foxconn’s capital and help to scale manufacturing, according to one of the sources.
Talks began early this year, and the startup landed on Foxconn after vetting a list of potential alternative offers, the source said. The deal has several phases and is in the early stage. Terms of the partnership are not finalized.
Our Next Energy’s path to building a U.S.-based battery company was derailed at the end of last year when, amid automakers’ dramatic pullback on EV production, the startup’s Series C fundraising round collapsed. Burning cash with no meaningful revenue stream, the company went into crisis mode, replacing its CEO, slashing headcount and suspending its production line in Van Buren Township.
The startup landed a round of bridge financing that newly installed CEO Paul Humphries said could last to the end of the year. But the company needs a larger, Series C round for a chance at long-term sustainability. It recently tapped Birch Lake Partners, a merchant bank known for its work with struggling startups, to help find funding.
While Our Next Energy looks to execute its deal with Foxconn, the startup continues to work toward a Series C, one of the sources said.
The startup’s value lies in its intellectual property. Led by founder Mujeeb Ijaz, who is currently chief tech officer after vacating the CEO role, the company’s lithium iron phosphate battery technology has shown big potential. Last November, it announced that its dual-chemistry battery achieved 608 miles of range on a single charge in the electric BMW iX.
The startup showed plenty of revenue potential, quoting hundreds of millions of dollars in supply agreements to customers. However, it lacked firm offtake agreements and has yet to land a binding supply deal with any major OEM. It has looked to the utility storage business as a quicker avenue to generate revenue.
In many ways, Our Next Energy’s rapid rise and fall mirrored its ill-fated predecessor A123 Systems. Novi-based A123 was a darling innovator of LFP batteries during the George W. Bush/Jennifer Granholm period, luring nearly $400 million in state and federal incentives. But it was ahead of its time, experts say.
Bad timing and bad luck led to its unraveling. After a Fisker battery fire problem, A123 filed for bankruptcy in 2012 before being bought at auction by Chinese conglomerate Wanxiang Group Corp. Since then, LFP technology has been developed in China, which has produced the largest battery makers in the world, including Contemporary Amperex Technology Co. Ltd.
The chance of that cycle playing out again — a homegrown startup relinquishing control to a foreign company — is likely on the minds of observers, especially in Lansing. The Michigan Economic Development Corp. approved roughly $200 million of incentives for Our Next Energy, which promised to invest $1.6 billion and create 2,112 jobs at a plant in Van Buren Township.
“While we will not comment on speculation, it is important to note that MEDC incentives are performance-based,” Danielle Emerson, public relations manager for the MEDC, said in an email to Crain’s. “Should any changes occur to a particular agreement, the MEDC will review those changes accordingly.”
Foxconn, one of the world’s largest employers, is no stranger to Michigan. In 2017, under then-Gov. Rick Snyder, the state offered the company an incentives package initially worth $3.7 billion to lure a $10 billion plant with 3,000 employees. The company instead chose Wisconsin, where it failed to deliver on much of its promise.
Foxconn recently outlined a new corporate strategy focused on EVs, digital health and robotics, as well as artificial intelligence, semiconductors and “next-generation communication technologies,” according to its website.
“Using electric vehicles as an example, Foxconn has a formidable global supply chain, and possesses key component manufacturing capabilities, structural R&D capabilities and system integration services,” the website said. “This unique set of proficiencies allow Foxconn to vertically consolidate services, and also provide services on smart platforms.”