Struggling EV startup Lordstown Motors could be forced into bankruptcy as a result of a dispute with its major shareholder and contract manufacturer, the Taiwanese-based Foxconn.
Once high-flying Lordstown stock went into freefall Monday morning after the spat was disclosed. Foxconn reportedly decided to back out of a $170 million investment deal after learning that Lordstown’s stock was informed it could be delisted from the Nasdaq exchange.
Without that financial package, Lordstown warned that “there is substantial doubt regarding our ability to continue as a going concern.” It said that without alternative funding it faced the prospect of having to file for bankruptcy.
A series of setbacks
Launched in 2018, Lordstown Motors acquired an shuttered General Motors assembly plant in Lordstown, Ohio, with plans to produce a line of battery-electric pickup trucks. The startup entered a SPAC-style reverse merger in October 2020 that allowed it to list on the Nasdaq exchange. Soon after, the company’s stock peaked around $30 a share.
But Lordstown ran into a series of setbacks, notably including the release of a study that found the automaker didn’t have the significant number of orders that it had claimed. CEO and co-founder Steve Burns was quickly forced out. And, as shares traded as RIDE began to tumble, Lordstown came up with a deal to sell its plant to Foxconn for $230 million. The EV maker retained several operations, however, including hub motor and battery pack assembly lines.
Best known as the contract producer of iPhones, Foxconn announced plans to take on a similar role in the auto industry for emerging EV companies. Lordstown completed a funding arrangement that was to make it Foxconn’s first customer.
A lifesaving deal may fall apart
Last November, the Taiwanese company entered into a deal to take a 20% stake in Lordstown. The deal was expected to be completed following a probe by the Committee on Foreign Investment in the United States. On April 25, the committee concluded there were no unresolved national security issues, Reuters reported. But Lordstown now claims Foxconn is reneging on the deal.
All told, it would invest $170 million into Lordstown. Foxconn came through with an initial $52.7 million last year but appears to be balking at providing the rest. The original goal was to complete a joint plan by May 7.
“Foxconn’s actions are completely unwarranted. Their course of conduct has resulted in material — and what is becoming irreparable — harm to the company,” Lordstown said in a statement.
Nasdaq threatens to delist Lordstown
The confrontation appears to have been triggered by the notification Lordstown has received from Nasdaq. The exchange advised the automaker that it will be delisted because its stock has fallen below $1 a share for more than 30 consecutive days. It actually slipped below that critical benchmark in early March.
As of noon on Monday, RIDE shares were trading around $0.36, a 52-week low. Shares had opened the day at $0.45 before word of the Lordstown-Foxconn spat was made public.
Lordstown has been burning cash at a rapid rate. It ended 2022 with $221.7 million in hand but lost over $100 million during the fourth quarter as it struggles to ramp up production of its Endurance pickup.