© Reuters. FILE PHOTO: A Lordstown Motors sign is seen outside the Lordstown assembly plant in Lordstown, Ohio, US, June 21, 2021. REUTERS/Rebecca Cook/File Photo
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Written by Mike Spector, Joseph White, and Dietrich Knuth
NEW YORK (Reuters) – Lordstown Motors filed for bankruptcy protection on Tuesday and put itself up for sale after the U.S. electric truck maker failed to resolve a dispute over a promised investment from Taiwan’s Foxconn.
Lordstown, named after the Ohio town in which it is located, has filed for Chapter 11 protection in Delaware and is simultaneously taking legal action against Foxconn.
In a complaint filed in bankruptcy court, Lordstown accused the electronics company of fraudulent behavior and a series of false promises of failing to honor an agreement to invest up to $170 million in the electric vehicle maker.
Foxconn previously invested about $52.7 million in Lordstown as part of the agreement, and currently holds approximately an 8.4% ownership interest in the EV maker. Lordstown alleges that Foxconn refused to buy additional shares of its stock as promised, and misled the electric vehicle maker about cooperating on plans to develop the vehicle.
Foxconn, formally called Hon Hai Precision Industry and best known for assembling Apple’s iPhones (NASDAQ:), said Lordstown breached the investment agreement when the automaker’s stock fell below $1 per share. Foxconn did not immediately respond to a request for comment.
The dual filing for bankruptcy and the lawsuit has created an international business clash that could intensify scrutiny of Foxconn’s electric car ambitions and partnerships, not only with Lordstown but also with other automakers.
The lawsuit depicts Foxconn as constantly shifting targets jobs in its collaboration with Lordstown on the automaker’s future vehicles, which included failing to fulfill financing obligations and refusing to engage with the company on initiatives that Foxconn allegedly directed and allegedly supported.
Lordstown, a startup launched in 2018, said in a regulatory filing earlier this month that it planned to sue Foxconn after receiving a letter from the company that led Lordstown to believe that Foxconn was unlikely to make its expected additional investment.
In this regulatory filing, Lordstown accused Foxconn of engaging in a “pattern of bad faith” that caused “irreparable material harm” to the company. Even in May, Lordstown warned it might have to file for bankruptcy amid uncertainty over the Foxconn investment.
The automaker’s flagship product is the Endurance electric pickup truck, which was built in a former General Motors Corporation (NYSE:) small auto plant in Lordstown, Ohio, for commercial customers such as local governments. Lordstown sold the plant to Foxconn in 2022.
Lordstown paused Endurance production earlier this year and since April has resumed truck construction at a reduced rate after quality issues with suppliers were resolved. Shares of the automaker have been falling since February and are currently trading at less than $3.
If Lordstown fails to find a savior willing to restart full production of the Endurance, the Ohio plant now owned by Foxconn could serve as a draw for overseas automakers looking for a quick way to build vehicles in the United States.
Lordstown filed for bankruptcy with plans to search for a buyer. She does not have an initial bid on hand, known in bankruptcy parlance as a stalking horse bidder, which sets the minimum price other suitors can command at the auction.
Edward Hightower, CEO of Lordstown, told Reuters the endurance business could be attractive to another automaker looking for a quick entry into the electric vehicle market at a time when Biden administration policies are trying to move away from gasoline-powered cars.
The Lordstown bankruptcy isn’t the first in a slew of electric vehicle start-ups announced during the pandemic-era plumber’s boom. But Lordstown was a standout member of that class because it challenged the core of Detroit’s longtime automakers business of high-margin pickup trucks, and because of its location.
The Lordstown plant in northeastern Ohio was formerly a small car plant for General Motors that GM decided to close in November 2018. US President Donald Trump and other Ohio political leaders pressured GM CEO Mary Barra to reverse the decision, or find a buyer. GM agreed to sell the plant to a newly formed entity called Lordstown Motors founded by the former CEO at an electric truck maker called the Workhorse Group.
Lordstown went public in October 2020 through a reverse merger with special purpose acquisition company DiamondPeak Holdings, joining a raft of electric vehicle start-ups that went public through such deals in that period.
Like many other companies, including truck maker Nikola, Lordstown struggled to live up to the high expectations of early investors. In 2021, its CEO and founder, Stephen Burns, resigned after the automaker admitted it had overcharged pre-orders for its electric trucks.
Lordstown’s chief financial officer also resigned at that time. Since then, Burns has sold his entire stake in Lordstown, according to a regulator filing in June.
As Lordstown grapples through 2021 and 2022 with investigations by regulators and the US Department of Justice, Ford Motor Company (NYSE:) has been releasing its electric F-150 Lightning pickup truck, aimed at commercial customers.
EV startup Rivian launches its luxury electric car in 2022. General Motors and Stellantis have announced plans to purchase electric pickups. Elon Musk’s Tesla (NASDAQ) has promised that it will start producing the Cybertruck late this year.
The company said Lordstown had struggled to increase production of its Endurance trucks over the past several months amid the dispute with Foxconn, difficult market conditions and the cost-intensive nature of its business.
Lordstown said in a regulatory filing in May that the few trucks the company had assembled had material costs “well above our selling price”.