US electric truck maker Lordstown Motors filed for bankruptcy Tuesday and was put up for sale after failing to resolve a dispute over a promised investment from Taiwan’s Foxconn.
Lordstown shares fell 35% while trading on the Nasdaq. The company’s bankruptcy is not the first among the crop of EV startups to go public during the pandemic era. spac pen. But Lordstown was a high-profile member of that class because he was challenging the core of Detroit’s legacy automakers’ high-margin pickup truck business, and because of its location.
“Lordstown’s bankruptcy signals that the days of successful EV startups are in the rear view mirror,” said Thomas Hayes, chairman of hedge fund Great Hill Capital. «Going forward, it will be Tesla and the incumbents … that will be going head-to-head for market share.»
The automaker, named after the Ohio city where it is based, filed for Chapter 11 protection in a Delaware bankruptcy court. In the complaint, Lordstown accused Foxconn of fraudulent conduct and a series of broken promises by reneging on an agreement to invest up to $170 million in the electric vehicle maker.
Foxconn previously invested some $52.7 million in Lordstown as part of the deal and currently holds an 8.4% stake in the electric vehicle maker. Lordstown contends that Foxconn is reluctant to buy additional shares of its shares as promised and misled the EV maker about collaborating on vehicle development plans.
Foxconn, formally called Hon Hai Precision Industry and best known for assembling Apple’s iPhones, said Lordstown reneged on the investment agreement when the automaker’s shares fell below $1 a share.
The Taiwanese company said Tuesday it had remained «positive in conducting constructive negotiations with Lordstown» but said the US firm had been reluctant to honor the investment agreement according to its terms.
He said the company was suspending negotiations with Lordstown and reserving the right to take legal action.
The twin Lordstown filings set up an international trade clash that could intensify Foxconn’s EV scrutiny. ambitions and partnerships, not only with Lordstown but with other auto manufacturers as well.
The lawsuit portrays Foxconn as constantly shifting objectives in its collaboration with Lordstown on the automaker’s future vehicles, including failing to meet funding commitments and refusing to engage with the company on initiatives Foxconn allegedly led and purported to support. .
Lordstown, a startup launched in 2018, said in a regulatory filing earlier this month that it had planned suing Foxconn after receiving a letter from the company that led Lordstown to believe that Foxconn was unlikely to make its expected additional investment.
Lordstown accused Foxconn in that regulatory filing of engaging in a «pattern of bad faith» that caused «material and irreparable damage» to the company.
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 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 building the trucks at a low rate since April after resolving quality issues with suppliers.
If Lordstown can’t find a savior willing to restart full Endurance production, the Ohio factory could be a lure for overseas automakers looking for a fast way to build vehicles in the United States.
Lordstown filed for bankruptcy with plans to find a buyer. He doesn’t have an initial bid in hand, known in bankruptcy jargon as a stalking bidder, that sets a minimum price that other suitors can beat at auction.
Lordstown chief executive Edward Hightower told Reuters the Endurance business could prove attractive to another automaker looking for a quick entry into the EV market at a time when the Biden administration’s policies seek to steer clear of gasoline cars.
The Lordstown factory in Northeast Ohio was formerly a GM (GM.N) small car factory that GM decided to close in 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 has agreed to sell the plant to a newly formed entity called Lordstown Motors founded by the former top executive of an electric truck maker called the Workhorse Group.
Like many others, including truckmaker Nikola, Lordstown, which went public in 2020, has struggled to meet the high expectations of early investors. In 2021, its CEO and founder, Stephen Burns, stepped down after the automaker acknowledged that it had overstated pre-orders for its electric trucks.
Lordstown’s finance chief at the time also resigned. burns ever since sold all of its stake in Lordstown, according to a June regulatory filing.
While Lordstown struggled through 2021 and 2022 with research By regulators and the US Department of Justice, Ford Motor was launching its F-150 Lightning electric pickup truck, aimed at commercial customers.
Electric vehicle startup Rivian has launched its luxury electric pickup truck in 2022. GM and Stellantis have announced plans for electric pickup trucks. Elon Musk’s Tesla has promised that it will start producing its Cybertruck later this year.