Lordstown Motorcorp Initiates Bankruptcy Proceedings

Lorsdstown Motors (RIDE) initiated Chapter 11 insolvency proceedings and lodged a lawsuit against Foxconn subsequent to the absence of fruition in a funding agreement with the Taiwanese manufacturer.

"Lordstown Motors Files for Bankruptcy."

The stock value of the electric vehicle (EV) producer experienced a substantial decline of more than 30% during the initial trading session on Tuesday morning subsequent to the disclosure.

Key TakeAway

• Lordstown Motors initiated a declaration of insolvocracy and instituted a lawsuit against Foxconn subsequent to the nonrealization of a financing accord with the Taiwanese corporation.
• Lordstown implored the Taiwan-based entity to procure roughly 10% of Lordstown's equity at a value of $47.3 million.
• The shares of Lordstown encountered a precipitous decline of over 30% during the initial trading phase on Tuesday subsequent to the dissemination of the information.

The corporation initiated a process of market presentation as a component of a tactical reformation endeavor aimed at optimizing the worth of its possessions, which encompass its on-road Endurance electric pickup truck, intellectual property, and platform.

Lordstown is instituting legal proceedings against the global technological organization Hon Hai Technology Group, along with several related entities, including Foxconn Ventures, on grounds of deceit, mala fides, and repeated contraventions of contractual obligations that ultimately led to the insolvency. Foxconn, recognized as the world's leading contractual manufacturer of electronics, notably associated with the assembly of Apple's iPhone.

Edward Hightower, CEO & President of Lordstown, stated, "[We] had purposefully engaged in a strategic collaboration with Foxconn to harness its expertise for the expansion of an extensive electric vehicle development platform. Despite our utmost endeavors and sincere dedication to the partnership, Foxconn deliberately and persistently failed to execute the agreed-upon strategy, leaving us with no alternative but to resort to Chapter 11 for the utmost realization of Lordstown's assets, to the advantage of our stakeholders. Consequently, we will tenaciously pursue our litigious claims against Foxconn."

What Prompted Lordstown's Lawsuit Against Foxconn?

Lordstown filed a legal suit against Foxconn due to a series of factors and events. Notably, Lordstown incurred a net deficit of $108 million in the second quarter of 2021 and anticipated a limited vehicle production output. As part of their agreement, Foxconn had agreed to acquire Lordstown's manufacturing facility in Ohio and other assets for $230 million, in addition to around $50 million worth of common stock from the electric vehicle (EV) truck manufacturer. In November 2022, Foxconn further invested $170 million in Lordstown Motors.

However, in February 2023, Lordstown publicly announced a temporary halt in production and delivery to address quality concerns, which were compounded by a voluntary recall affecting 19 vehicles. In their first-quarter results of 2023, Lordstown reported a net loss of $171.1 million, with a mere $108.1 million in available cash.

These cumulative factors and financial setbacks likely led Lordstown Motors to initiate legal action against Foxconn, citing issues such as breach of contract, fraud, or other grievances.

By April, Lordstown's equity value had declined to a level below $1, which led to a delisting advisory being issued by the Nasdaq. At this point, Foxconn declined the opportunity to acquire approximately 10% of Lordstown's shares for $47.3 million, citing Lordstown's alleged breach of contract. Foxconn further conveyed a warning that unless the breach was rectified within 30 days, they would terminate the agreement.

In May, Lordstown issued a cautionary statement indicating that the absence of funds from Foxconn would result in the company being "deprived of crucial financing for its operations" and subsequently resorting to bankruptcy.