Lordstown Motors, the electric vehicle startup, is facing a critical situation as its funding deal with Foxconn hangs in the balance. The company disclosed on Monday that if the deal doesn’t materialize, it may be forced into bankruptcy. The news sent shockwaves through the market, causing Lordstown’s shares to plummet by over 23% on the same day.
According to a regulatory filing made by Lordstown on Monday, Foxconn sent a letter on April 21, alleging that the startup had breached their investment deal. The breach was triggered by Lordstown’s stock falling below $1 per share for 30 consecutive trading days, leading to a delisting notice from NASDAQ.
The troubled startup had previously struck a deal to sell its Ohio factory to Foxconn, a Taiwanese contract-manufacturing giant. The transaction was completed in May 2022. Subsequently, the two companies agreed on a second deal in which Foxconn would invest up to $170 million in Lordstown, acquiring a 19.3% stake.
While Foxconn made an initial payment of $52.7 million last year, the remaining funds, as well as the entire deal, are now at risk. As per the terms of the agreement, Foxconn is obligated to invest $47.3 million within ten days of receiving regulatory approval from the Committee on Foreign Investment in the United States. Lordstown confirmed that this approval was obtained on April 25, meaning that Foxconn is required to make the investment by May 8.
Lordstown expressed concerns that Foxconn might not meet the investment deadline and accused the company of lacking the necessary commitment to fulfill an essential milestone of the deal: jointly developing a new electric vehicle (EV). The two companies were expected to finalize the plan for the EV project by May 7, after which Foxconn would make an additional investment of $70 million. Lordstown claims that Foxconn’s failure to make “commercially reasonable efforts” in completing the plan has further complicated the situation.
In response to CNBC’s inquiry, Lordstown released a statement condemning Foxconn’s actions as “completely unwarranted” and highlighting the significant harm inflicted upon the company, which is becoming increasingly irreparable.
Lordstown’s regulatory filing also contained a warning that if the Foxconn deal collapses, the company may have no choice but to file for bankruptcy protection. Despite having $221.7 million in cash reserves at the end of 2022, Lordstown suffered a loss of over $100 million in the fourth quarter alone.
As of now, Foxconn has not provided any immediate comment on the matter.
