Lordstown Motors Corp (Nasdaq: RIDE), the U.S. electric truck manufacturer, has filed for bankruptcy protection and initiated the process of selling the company after failing to resolve a dispute over a promised investment from Foxconn, Taiwan’s leading electronics company.
This development has led to a significant drop of nearly 60% in Lordstown’s shares in pre-market trading. Year-to-date, the company’s market cap has fallen more than 83%.
Under Chapter 11 protection in Delaware, Lordstown has also taken legal action against Foxconn, accusing the electronics giant of fraudulent conduct and reneging on its commitment to invest up to $170 million in the electric vehicle manufacturer. Foxconn had previously invested $52.7 million in Lordstown and holds an 8.4% stake in the company. Lordstown alleges that Foxconn has failed to fulfill its promise to purchase additional shares and misled them about collaborating on vehicle development plans.
Foxconn, known for its assembly of Apple’s iPhones, claims that Lordstown breached the investment agreement when the automaker’s stock fell below $1 per share. In November, the Taiwanese firm entered into an agreement to invest up to $170 million in Lordstown and secure two board seats. This deal provided much-needed capital for the EV manufacturer and allowed the Taiwanese company to strengthen its position in the automotive production sector.
As part of the arrangement, Foxconn acquired Lordstown’s former General Motors factory in Ohio and intended to produce the startup’s Endurance pickup truck under a contract agreement. However, complications arose in January when Lordstown requested the suspension of production due to the high cost of manufacturing the truck, which exceeded the targeted sale price of $65,000. The company expressed the need for an additional partner to share the costs.
On Tuesday, Foxconn announced the suspension of talks with Lordstown, refuting the claims made by the U.S. company as false and malicious. The Apple supplier stated that it had made efforts to assist Lordstown with its financial difficulties, but ultimately, the carmaker failed to fulfill its obligations outlined in the investment agreement.
The bankruptcy filing and legal battle between Lordstown and Foxconn have global implications for Foxconn’s EV ambitions and partnerships. Lordstown’s lawsuit depicts Foxconn as continuously changing its collaboration goals and failing to fulfill funding commitments, hindering the development of Lordstown’s future vehicles.
Lordstown, founded in 2018, primarily produces the Endurance electric pickup truck at its Ohio factory, formerly owned by General Motors. The company temporarily paused production of the Endurance due to quality issues but resumed at a slower rate after resolving them.
In its bankruptcy filing, Lordstown aims to find a buyer to revive full production of the Endurance. Without a stalking-horse bidder or any initial offers, an auction will determine the minimum price that potential buyers must pay.
The bankruptcy of Lordstown Motors signifies another setback among electric vehicle startups that emerged during the SPAC boom. As a high-profile member of this group, Lordstown’s struggle to live up to investors’ expectations, combined with the Foxconn dispute, has contributed to its current financial crisis.
This development has garnered attention due to the Lordstown factory’s political significance. After General Motors decided to close the plant in 2018, then-US President Donald Trump and Ohio’s political leaders pressured General Motors to reverse the decision or find a buyer. The Ohio plant was eventually sold to Lordstown Motors, drawing attention to the promise of job creation and a positive economic impact.
While Lordstown’s bankruptcy may result in the loss of a customer for Foxconn, the Taiwanese company still possesses the manufacturing facility, supporting its ambitions to offer EV manufacturing services in North America. Foxconn aims to capture a 5% share of the global EV market by 2025.
In light of Lordstown’s legal action against Foxconn, the Taiwanese company’s EV promises and partnerships with other automakers may face increased scrutiny. Foxconn’s difficulties in achieving volume production and its collaboration with Fisker and Monarch Tractor will likely be closely observed.
Lordstown’s bankruptcy and potential sale underscore the critical need for a lifeline to resume full production of the Endurance. If unsuccessful, Foxconn could utilize the Ohio factory to produce EVs for foreign automakers seeking to take advantage of U.S. incentives and produce electric vehicles domestically.
Lordstown’s CEO, Edward Hightower, highlights the appeal of the Endurance business to other automakers aiming to enter the EV market swiftly, particularly amidst the Biden administration’s push for a transition away from gasoline-powered vehicles.
Information for this briefing was found via CNBC, Bloomberg, TechCrunch, and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.