Lordstown Motors files bankruptcy, sues Foxconn (updated)

Nu Ride

27/06/2023 06:27

(Adds Lordstown shares have plunged in 11th paragraph)
    By Mike Spector, Joseph White and Dietrich Knauth
       NEW YORK, June 27 (Reuters) - Lordstown Motors  RIDE.O 
filed for bankruptcy protection on Tuesday and put itself up for
sale after the U.S. electric truck manufacturer failed to
resolve a dispute over a promised investment from Taiwan company
Foxconn.
    Lordstown, named after the Ohio town where it is based,
filed for Chapter 11 protection in Delaware and simultaneously
took legal action against Foxconn. 
    In an complaint filed in bankruptcy court, Lordstown accused
the electronics company of fraudulent conduct and a series of
broken promises in failing to abide by an agreement to invest up
to $170 million in the electric-vehicle manufacturer. 
    Foxconn previously invested about $52.7 million in Lordstown
as part of the agreement, and currently holds a roughly 8.4%
ownership 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
 2317.TW  and best known for assembling Apple's  AAPL.O 
iPhones, has 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 twin filings of the bankruptcy and lawsuit 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.
    The automaker’s main product is the Endurance electric
pickup truck, which is built at a former General Motors
small-car factory in Lordstown, Ohio, 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 and currently
trade under $3.
    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 United States. 
    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 Chief Executive 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 automakers' business
of high-margin pickup trucks, and because of its location.
    The Lordstown factory in Northeast Ohio was formerly a GM
 GM.N  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.
    Like several others, including truck maker Nikola  NKLA.O ,
Lordstown has struggled to live up to the high expectations of
early investors. In 2021, its chief executive and founder,
Stephen Burns, resigned after the automaker acknowledged it had
overstated pre-orders for its electric trucks.
    Lordstown’s finance chief at the time also resigned. Burns
has since sold his entire stake in Lordstown, according to a
June regulatory filing.
    As Lordstown wrestled during 2021 and 2022 with
investigations by regulators and the U.S. Justice Department,
Ford Motor  F.N  was launching its electric F-150 Lightning
pickup truck, aiming at commercial customers.
    EV startup Rivian  RIVN.O  launched its luxury electric
pickup in 2022. GM and Stellantis have announced plans for
electric pickups. Elon Musk’s Tesla  TSLA.O  has promised it
will begin producing its Cybertruck late this year.
    Lordstown struggled to ramp up production of its Endurance
trucks over the past several months amid the dispute with
Foxconn, challenging market conditions and the cost-intensive
nature of its business, the company has said.
    The few trucks that the company assembled had material costs
that were “substantially higher than our selling price,”
Lordstown said in a May regulatory filing. 

 (Reporting by Mike Spector in New York, Joseph White in Detroit
and Dietrich Knauth in New York
Editing by Nick Zieminski)
 ((mike.spector@thomsonreuters.com; 347-266-9966; Reuters
Messaging: Twitter: @mike_d_spector))