Lordstown Motors announced that it may face bankruptcy if its investment deal with Foxconn does not go through. On Monday, the electric vehicle startup revealed that its shares had plummeted by 25% in early trading. The company stated in a regulatory filing that Foxconn had sent a letter on April 21, stating that Lordstown was in breach of the investment contract. This was because its stock had traded lower than $1 per share for 30 consecutive days, leading to a delisting notice from NASDAQ.
Lordstown Motors and Foxconn signed a deal last year, in which the Taiwanese contract manufacturer agreed to purchase Lordstown’s Ohio factory. The two companies then agreed to a second deal, in which Foxconn would hold a 19.3% stake in Lordstown by investing up to $170 million. Foxconn made the first payment of $52.7 million under the agreement last year. However, the rest of the payment, as well as the investment deal, are now in jeopardy.
Lordstown Motors Warns of Bankruptcy
According to the agreement, Foxconn was to invest $47.3 million within ten days of regulatory approval by the Committee on Foreign Investment in the United States. Lordstown said that it had received approval on April 25, and that Foxconn is obligated to make the investment by May 8. Lordstown is concerned that Foxconn may not fulfill its obligation before the deadline, and that the company is not making a sufficient effort to complete the EV plan. The two companies had agreed to finalize the plan to develop a new EV by May 7, after which Foxconn would invest an additional $70 million. Lordstown claims that Foxconn has not made “commercially reasonable efforts” to complete the plan.
Lordstown Motors stated that if the investment deal falls through, it may be compelled to file for bankruptcy protection. The company had $221.7 million in cash on hand as of the end of 2022, but it lost over $100 million in the fourth quarter. Lordstown stated that Foxconn’s actions are “completely unwarranted” and have resulted in “material and irreparable harm to the company.” Foxconn has yet to respond to the situation.
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