Shares of electric vehicle (EV) startup Lordstown Motors fell by 25% in early trading after the company disclosed on Monday that its funding deal with Foxconn is in jeopardy, potentially leading to bankruptcy if the deal falls through. Foxconn is famously known as a manufacture of Apple’s products such as its iPhone and iPads.
In a regulatory filing on Monday, Lordstown revealed that it received a letter from Foxconn on April 21, alleging that the startup breached their investment agreement because its stock had fallen under $1 per share for 30 consecutive trading days, triggering a delisting notice from NASDAQ.
Lordstown Motors had previously sold its Ohio factory to Taiwanese contract-manufacturing giant Foxconn last year. After closing that deal in May 2022, the companies agreed on a second deal wherein Foxconn would invest up to $170 million in Lordstown, amounting to a 19.3% stake. Foxconn paid the initial $52.7 million last year, but the remainder and the deal itself are now at risk.
Under the deal’s terms, Foxconn must invest $47.3 million within 10 days of receiving regulatory approval from the Committee on Foreign Investment in the United States. Lordstown Motors confirmed that the approval was secured on April 25, which means Foxconn is obliged to make the investment by the 8th of May.
However, Lordstown is concerned that further investment may not arrive before the deadline, and Foxconn appears not to be making a good faith effort to complete an EV plan, a key milestone in the deal. The companies had agreed to finalize a plan to jointly develop a new EV by May 7, after which Foxconn is obliged to invest an additional $70 million. Lordstown claims that the plan has not been finalized due to Foxconn’s lack of “commercially reasonable efforts” to complete it.
In a statement to CNBC, Lordstown said Foxconn’s actions are “completely unwarranted” and have caused “material — and what is becoming irreparable — harm to the company.”
“If we are unable to resolve our dispute with Foxconn in a timely manner on terms that allow us to continue operating as planned, identify other sources of funding, identify a strategic partner and resolve our significant contingent liabilities, we may need to curtail or cease operations and seek protection by filing a voluntary petition for relief under the Bankruptcy Code. If this were to occur, the value available to our various stakeholders, including our creditors and stockholders, is uncertain,” said Lordstown in its filing.
The EV startup warned in the filing that it may be forced to file for bankruptcy protection if the Foxconn deal falls through. Despite having $221.7 million on hand at the end of 2022, the company lost over $100 million in the fourth quarter.
