Update: Lordstown Motors Warns of Bankruptcy if Foxconn Terminates Agreement
[EDITOR’S NOTE: This story has been updated with a statement from Lordstown Motors.]
LORDSTOWN, Ohio – Foxconn has informed electric-vehicle startup Lordstown Motors Corp. that it could terminate its investment agreement with that company unless the struggling EV manufacturer comes into compliance with Nasdaq rules.
According to a regulatory filing Monday morning, Lordstown Motors said that the company received a letter from Foxconn on April 21 stating that Lordstown was in breach of a $170 million investment agreement the parties signed in November last year. If the issue is not resolved, Lordstown Motors said that it could be forced into bankruptcy protection.
“Foxconn’s actions are completely unwarranted,” Lordstown Motors said in a statement released Monday morning. “Their course of conduct has resulted in material — and what is becoming irreparable — harm to the company. We intend to continue our efforts to minimize the damage and work with Foxconn to find an amicable path forward. However, in the absence of a timely resolution, we will take all actions necessary to protect our business interests and enforce all of our rights and remedies.”
Should the agreement be voided, Lordstown Motors would be “deprived of critical funding necessary for its operations,” the company stated. The company also said that should a resolution not be reached, it could “curtail or cease operations and seek protection by filing a voluntary petition for relief under the Bankruptcy Code.”
In Monday morning trading, Lordstown Motors’ stock, listed under the ticker RIDE, plummeted more than 23% to 40 cents per share.
Foxconn cited Lordstown Motors’ receipt April 20 of a delisting notice from the Nasdaq, noting the company was noncompliant with the exchange’s rules because Lordstown Motors’ stock had not met the minimum bid price of $1 for at least 30 consecutive business days.
Under Nasdaq rules, Lordstown Motors has 180 days to regain compliance.
According to the filing, Foxconn has purported to terminate the agreement unless Lordstown Motors returns to compliance within 30 days.
The agreement called for Foxconn to make equity investments in Lordstown through the purchase of $70 million in class A common stock and up to $100 million in series A convertible preferred stock.
On November 22, Foxconn purchased approximately $22.7 million of class A common stock and $30 million in preferred stock per the agreement.
However, Foxconn has not proceeded with a second round of closing for an additional $47.3 million in stock, the filing said. That closing is supposed to occur 10 days after Lordstown Motors received clearance from the U.S. government’s Committee on Foreign Investment in the United States. Lordstown received CFIUS clearance April 25, documents show.
The investment was intended for new product development at Lordstown Motors using Foxconn’s Mobility-In-Harmony, or MIH, platform.
Lordstown Motors said in its regulatory filing that it believes Foxconn’s breach of contract allegation is “without merit” and that the company does not have the authority to cancel the agreement after an initial closing. Lordstown Motors also said that it believes Foxconn has breached the agreement since it has failed to agree to an EV program budget and EV program milestones to facilitate the additional preferred stock investment.
“The company is in discussions with Foxconn to seek a resolution regarding these matters,” Lordstown Motors said in its filing. “However, to date, Foxconn has declined to revoke its invalid termination notice and has failed to confirm that it will proceed with the subsequent common stock closing or any preferred stock closing.”
Lordstown Motors said in its filing that it’s evaluating its legal and financial alternatives in the event a resolution is not reached.
Foxconn purchased Lordstown Motors’ plant – a former General Motors factory – for $230 million in May 2022. The Taiwanese tech giant also signed a contract manufacturing agreement to produce Lordstown Motors’ first vehicle – the all-electric Endurance pickup. Production of the Endurance began in the third quarter of 2022, but has proceeded at a slow pace.
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