By Mike Spector, Joseph White, and Dietrich Knauth
NEW YORK (Portal) – Lordstown Motors filed for bankruptcy protection and put itself up for sale on Tuesday after the US electric truck maker failed to resolve a dispute over a promised investment by Taiwanese group Foxconn.
Lordstown’s shares fell 35.6% in pre-IPO trading.
The automaker, named after the Ohio city where it is based, filed for Chapter 11 protection in Delaware while simultaneously filing legal action against Foxconn.
In a lawsuit filed in bankruptcy court, Lordstown accused the electronics company of fraudulent behavior and a series of broken promises after failing to honor an agreement to invest up to $170 million in the electric vehicle maker.
Foxconn previously invested about $52.7 million in Lordstown under the deal and currently owns a nearly 8.4% stake in the electric vehicle maker. Lordstown alleges Foxconn has balked at a promised purchase of additional shares of its stock and has misled the electric vehicle maker about collaborating on vehicle development plans.
Foxconn, officially called Hon Hai Precision Industry and best known for assembling Apple’s iPhones, said Lordstown breached the investment agreement when the automaker’s shares fell below $1 a share. Foxconn did not immediately respond to a request for comment.
The two filings created an international business conflict that could intensify scrutiny of Foxconn’s EV ambitions and partnerships not only with Lordstown, but with other automakers as well.
The lawsuit alleges that Foxconn is continually shifting goals as it works with Lordstown on the automaker’s future vehicles. These included, among other things, failing to meet funding commitments and refusing to engage with the company in initiatives Foxconn allegedly led and allegedly supported.
Lordstown, a startup founded in 2018, said in a regulatory filing earlier this month that it planned to sue Foxconn after receiving a letter from the company leading Lordstown to believe Foxconn was unlikely to make the additional investments it expected would.
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Lordstown accused Foxconn of having committed a “pattern of bad faith” that caused “material and irreparable damage” to the company. As early as May, Lordstown warned that the company could be forced to file for bankruptcy given the uncertainty surrounding the Foxconn investment.
The automaker’s flagship product is the Endurance electric pickup truck, which is being built in a former General Motors small-car factory in Lordstown, Ohio, for commercial customers such as local governments. Lordstown sold the plant to Foxconn in 2022.
Lordstown halted production of the Endurance earlier this year and has resumed production of the trucks at a slow pace since April after quality issues with suppliers were resolved. Shares of the automaker have fallen sharply since February and are currently trading below $3.
Should Lordstown fail to find a savior willing to resume full production of the Endurance, the Ohio plant, now owned by Foxconn, could be a draw for foreign automakers looking for a quick way to get vehicles into… to build the United States.
Lordstown filed for bankruptcy and planned to seek a buyer. There is no first bid, known in bankruptcy parlance as a stalking horse bidder, which sets a reserve price that other bidders can beat in an auction.
Lordstown chief executive Edward Hightower told Portal that the endurance business could prove attractive to another automaker looking to make a quick entry into the EV market amid the Biden government’s policies trying to steer clear of it remove gas powered cars.
Lordstown’s bankruptcy isn’t the first among electric-car startups to go public during the pandemic-era SPAC boom. But Lordstown was a star performer because it challenged the core of Detroit’s old automaker business with high-margin pickup trucks and because of its location.
The Lordstown plant in northeast Ohio was formerly a GM small car factory that GM planned to close in November 2018. Then-US President Donald Trump and other Ohio political leaders pressured GM CEO Mary Barra to reverse the decision or find a buyer. GM agreed to sell the plant to a startup called Lordstown Motors, founded by the former top executive of an electric truck manufacturer called the Workhorse Group.
Lordstown went public in October 2020 through a reverse merger with special purpose vehicle DiamondPeak Holdings, joining a bevy of EV startups to go public through such deals during this period.
Like several others, including truck maker Nikola, Lordstown struggled to live up to the high expectations of early investors. In 2021, its CEO and founder Stephen Burns resigned after the automaker admitted it had overstated pre-orders for its electric trucks.
Lordstown’s chief financial officer at the time also resigned. Burns has since sold its entire stake in Lordstown, according to a regulatory filing filed in June.
While Lordstown grappled with investigations from regulators and the U.S. Department of Justice in 2021 and 2022, Ford Motor launched its F-150 Lightning electric pickup truck aimed at commercial customers.
EV startup Rivian launched its luxury electric pickup truck in 2022. GM and Stellantis have announced plans for electric pickups. Elon Musk’s Tesla has promised to start production of its cybertruck by the end of this year.
According to the company, Lordstown has struggled to ramp up production of its endurance trucks in recent months due to the dispute with Foxconn, difficult market conditions and the costly nature of its business.
The few trucks the company assembled had material costs that were “significantly higher than our retail price,” Lordstown said in a May registration application.
(Reporting by Mike Spector in New York, Joseph White in Detroit and Dietrich Knauth in New York, editing by Nick Zieminski and Dhanya Ann Thoppil)