Lordstown Motors is down.
To recap: The electric vehicle upstart was founded in 2018 and was hailed in 2019 by then-President Donald Trump, after it took over a former General Motors plant in Lordstown, Ohio.
The company was then riding on the Republican president's Made in America bandwagon. It promised to revive the auto industry in the region by creating the jobs that were lost after GM GM closed the plant.
But five years later, the company is the first of all young Tesla competitors to file for Chapter 11 bankruptcy -- in U.S. Bankruptcy Court for the District of Delaware -- after a long nightmare.
The company explained in a June 27 statement that it had no choice but to file Chapter 11 because its partner, Foxconn, one of the main suppliers of Apple (AAPL), had abandoned it.
Bankruptcy the 'Only Viable Option': Lordstown
The bankruptcy filing will enable a strategic restructuring, says the manufacturer of the EV pickup truck Endurance.
Lordstown Motors has decided to put itself up for sale by "commencing a comprehensive marketing and sale process for its all-electric Endurance pickup truck and related assets."
"As one of the early entrants to the EV industry, we have delivered the Endurance, an innovative and highly capable EV with significant commercial and retail potential – and had subsequently engaged with Foxconn in a purposeful, strategic partnership to leverage this expertise into a broader EV development platform," Chief Executive Edward Hightower said in a statement.
"Despite our best efforts and earnest commitment to the partnership, Foxconn willfully and repeatedly failed to execute on the agreed-upon strategy, leaving us with Chapter 11 as the only viable option to maximize the value of Lordstown's assets for the benefit of our stakeholders.
"We will vigorously pursue our litigation claims against Foxconn accordingly."
Lordstown (RIDE) has indeed filed a complaint against Foxconn, which it accuses of fraud and broken promises.
Last November, Foxconn, formally known as Hon Hai Precision Manufacturing, announced that it would take an 18.3% stake in Lordstown Motors, as well as two seats on the board, for an equity injection of around $170 million.
The deal, which would have been run through Foxconn affiliate Foxconn Ventures Pte Ltd., would have made it the biggest Lordstown shareholder, topping the stake of Founder Stephen Burns.
Foxconn purchased Lordstown's Ohio facility in 2022. That plant, with Foxconn's assistance, is now producing the Endurance pickup truck.
Lordstown Motors
Lordstown's Legal Fight With Foxconn
Last month, Lordstown said that Foxconn honored part of the investment agreement in November, buying about $22.7 million of Class A common stock and $30 million of preferred stock.
The world's biggest contract electronics manufacturer agreed to further buy about 26.9 million Lordstown shares for about $47.3 million within 10 business days after the two companies received clearance from the Committee on Foreign Investment in the U.S.
The carmaker received that agency's clearance on April 25, but Foxconn didn't buy more Lordstown shares, according to the carmaker. In total, Foxconn has invested about $52.7 million in Lordstown as part of the agreement and currently holds an almost 8.4% stake in the EV maker.
"Foxconn consistently failed to honor its agreements," Lordstown alleged in the lawsuit, adding that after getting the valuable assets it desired up front, Foxconn then "sabotaged" the carmaker's business, "starving it of cash and causing it to fail."
"Instead of building a thriving business for the benefit of all Lordstown's stakeholders, Foxconn maliciously and in bad faith destroyed that business, costing Lordstown's creditors and shareholders billions," the company charged.
The group is asking the court to award unspecified damages.
Foxconn, in turn, has accused Lordstown Motors of having breached the contract by letting the stock price fall below $1 a share for too long.
On June 27, the Taiwanese company said it had maintained "a positive attitude in conducting constructive negotiations with Lordstown.” But it added that the carmaker had been reluctant to execute the investment agreement in accordance with its terms.
Foxconn added that it reserved the right to pursue legal action.
Lordstown
Lordstown Motors Is Looking for a Buyer
At the end of May, Lordstown tried to respond to Foxconn's criticisms by carrying out a reverse stock split, which initially boosts the stock price by proportionately cutting the number of shares outstanding.
It was a 1-for-15 split, which meant that an investor who owned 15 shares would have received 1 share at 15 times the presplit price. Investors with less than 15 shares would have been paid the market value of their shares in cash. Fractional shares would also have been paid in cash.
The problem is that a reverse split often leads the stock price to drop because investors see it as a sign of a company's financial weakness. This is the case with Lordstown Motors.
Lordstown’s shares fell more than 60% to $1.10 on June 27 in premarket trading. The day before, these shares had ended the session down 7.2% at $2.77.
The carmaker has produced 56 units of the Endurance pickup truck and delivered 18 to customers. Endurance, base-priced at a little more than $65,000, competes with Rivian's (RIVN) R1T, Ford's (F) F-150 Lightning, and General Motors' GMC Hummer EV.
In a few months, Tesla (TSLA) will join the competition with its Cybertruck, while GM will market the electric version of the Chevrolet Silverado.
Faced with this competition, Lordstown seems not to have had much opportunity without the funds to support its operations.
Lordstown is, however, "confident that a buyer could utilize the Endurance platform to create multiple EV variants and take the product to the next level."
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