Fledgling EV manufacturer Lordstown Motors, which has been in difficulty for several months, today filed for Chapter 11 bankruptcy protection.
The company announced that it would be putting itself up for sale as part of a dispute over investments promised by Taiwanese company Foxconn. Lordstown has filed suit against Foxconn in relation to that dispute.
Lordstown shares fell by over 60 percent in pre-market trading following the news.
The company accuses Foxconn of fraud, and of failing to honour an agreement under which the Taiwanese company was to invest $170 million in Lordstown Motors. The agreement called for the companies to partner on development of a range of new electric vehicles.
In a statement sent to CNBC, Foxconn said it hoped to continue discussions in order to reach a solution that would “satisfy all parties” without having to “resort to unfounded legal action.” However, in light of the dispute and what it described as Lordstown's attempt to "mislead the public", it is suspending talks and reserves the right to take its own legal action.
Recall that Lordstown Motors was launched in 2019 and was using a plant in Ohio acquired from General Motors. It reached an agreement in May 2022 to sell that plant to Foxconn for $230 million. The two companies then agreed on a second deal in which Foxconn would invest up to 170 million in Lordstown, taking a 19.3-percent stake in the fledgling company.
Last year, Foxconn paid the first instalment of $52.7 million due under the agreement. The next payment, in the amount of $47.3 million, was due within 10 days of regulatory approval by the Committee on Foreign Investment in the United States. This approval was obtained at the end of April, according to Lordstown, but Foxconn never made the payment.
Instead, Foxconn informed Lordstown that it had breached a clause in the agreement by allowing its share price to fall below one dollar per share.
In early May, Lordstown warned investors that a bankruptcy filing was likely if it failed to reach an agreement with Foxconn or obtain additional funding from other partners. A few days later, Lordstown declared it was almost out of cash and would be forced to halt production of its Endurance EV if it did not find strategic partners.
Lordstown had only $108.1 million in cash at the end of March, having lost $171.1 million in the first quarter of 2023.
We'll be keeping an eye on this situation, but it's not looking good for one of the several firms trying to make a name for themselves in the nascent EV sector.