Lordstown Motors files for Chapter 11 bankruptcy, sues Foxconn, seeks buyer

Foxconn previously invested about $52.7 million in Lordstown as part of the agreement, and currently holds an almost 8.4 percent stake in the EV maker. Lordstown contends Foxconn is balking at purchasing additional shares of its stock 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, has said Lordstown breached the investment agreement when the automaker’s stock fell below $1 per share.

Foxconn, in a statement, said it was hoping it could resolve the dispute through negotiations, without resorting to “baseless legal actions.” It said Lordstown’s statement contains “false comments” and “malicious attacks.” Foxconn said it could pursue its own legal actions and will suspend “subsequent good faith negotiations.”

International business clash?

Lordstown’s filings set up an international business clash that could intensify scrutiny of Foxconn’s EV ambitions and partnerships, not only with Lordstown but also other automakers.

The lawsuit portrays Foxconn as consistently shifting goal posts in its collaboration with Lordstown on the automaker’s future vehicles, which included failing to meet funding commitments and refusing to engage with the company on initiatives Foxconn allegedly directed and purported to support.

Lordstown, a startup launched in 2018, said in a regulatory filing earlier this month that it had planned to sue Foxconn after receiving a letter from the company that led Lordstown to believe Foxconn was unlikely to make its additional expected investment.

Lordstown accused Foxconn in that regulatory filing of engaging in a “pattern of bad faith” that caused “material and irreparable harm” to the company. Even in May, Lordstown warned it might be forced to file for bankruptcy amid uncertainty over the Foxconn investment.

Truck production

The automaker’s main product is the Endurance electric truck for commercial customers such as local governments. Lordstown sold the plant to Foxconn in 2022.

Lordstown paused production of the Endurance earlier this year and since April has resumed building the trucks at a low rate after resolving quality issues with suppliers. The automaker’s shares have plunged since February.

Should Lordstown fail to find a rescuer willing to re-start full production of the Endurance, the Ohio factory now owned by Foxconn could be a draw for overseas automakers looking for a quick way to build vehicles in the U.S.

Lordstown filed for bankruptcy with plans to seek a buyer. It does not have an initial offer in hand, known in bankruptcy parlance as a stalking-horse bidder, which sets a minimum price other suitors can top in an auction.

Lordstown CEO Edward Hightower told Reuters the Endurance business could prove attractive to another automaker looking for a fast entry into the EV market at a time the Biden administration’s policies are attempting to move away from gasoline-powered cars.

Lordstown’s bankruptcy is not the first among the crop of EV startups that went public during the pandemic-era SPAC boom. But Lordstown was a high-profile member of that class because it was challenging the core of the legacy Detroit 3 automakers’ business of high-margin pickup trucks, and because of its location.

The Lordstown factory in Northeast Ohio was formerly a GM small-car factory that GM decided to close in November 2018. Then-U.S. President Donald Trump and other Ohio political leaders put pressure on 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 top executive at an electric truck maker called Workhorse Group.

Lordstown went public in October 2020 through a reverse merger with special purpose acquisition company DiamondPeak Holdings, joining a flock of EV startups that went public through such deals in that period.