EV start-up Lordstown (RIDE) just hit another major hurdle in its journey to bring the Endurance electric pickup to market. According to an SEC filing on Monday, Lordstown may be facing bankruptcy after Foxconn, which has been a lifeline for the company thus far, signaled an end to their investment agreement.
Lordstown has faced an uphill battle in bringing its first electric model, the Endurance pickup, to the market since its founding in 2018.
After going public on the US NASDAQ exchange in 2020, Lordstown became one of the high-profile EV stocks alongside Canoo (GOEV), Arrival (ARVL), Nikola, Faraday Future (FFIE), Rivian (RIVN), Lucid (LCID), and more.
Many of the start-ups mentioned above have experienced similar financial hardships, with rising input costs and supply chain disruptions.
To make matters worse, over the past year, the Federal Reserve has raised interest rates at a pace not seen since the 80s. High-growth companies like those in the electric vehicle market have seen their valuations crater, making it harder to access cheap funding through equity raises.
Although Lordstown claimed the initial batch of 500 Endurance trucks was out for delivery last November, the company voluntarily recalled them, halting production over quality issues.
Lordstown has faced bankruptcy several times last year, yet the Taiwanese electronics manufacturer Foxconn has been there to back the EV start-up financially, with several investment rounds to revamp the program.
According to Lordstown’s SEC filing Monday, that may no longer be the case. With the Foxconn deal falling through, the start-up says bankruptcy is a possibility.
Lordstown faces bankruptcy with Foxconn backing out
Lordstown’s 8-K filing indicates Foxconn may be looking to part ways with the young EV start-up.
On April 21, 2023, Foxconn sent a letter to Lordstown stating the company was in breach of the previous investment agreement after receiving a delisting notice from the NASDAQ stock exchange.
The notice is due to Lordstown’s stock price falling below the minimum trade requirement of $1.00 for 30 consecutive trading days. Foxconn says it will terminate the investment agreement if it’s not resolved within 30 days.
Lordstown says it has notified Foxconn that it believes the breach allegations in the notice are without merit.
Lordstown also says the investment agreement, by its terms, does not permit Foxconn to terminate it following the initial closing. It adds:
In any event, Foxconn cannot exercise termination rights because Foxconn has breached the Investment Agreement by failing to use necessary efforts to agree upon the EV program budget and EV program milestones to facilitate the funding of the additional Preferred Stock investment.
Therefore, Lordstown believes the investment agreement is still in effect and is in discussions with Foxconn to seek a resolution.
However, if Foxconn doesn’t provide the funding, “the company will be deprived of critical funding necessary for its operations.” The filing adds if the company is unable to resolve the dispute with Foxconn:
We may need to curtail or cease operations and seek protection by filing a voluntary petition for relief under the Bankruptcy Code.
Electrek’s Take
From the information in the filing, it seems Foxconn is looking for a way out. The company believes with Lordstown potentially being delisted from the NASDAQ, it shouldn’t be bound to the terms of the up to $170 million investment agreement.
If this is the case, Lordstown will lose its lifeline and face bankruptcy. The company is looking for a resolution with ongoing discussions with Foxconn, but if Lordstown can’t come to terms, it will be an uphill battle getting the Endurance pickup to market.
Lordstown did say it’s evaluating its legal and financial options in the event a deal with Foxconn is not made. We’ll update you as soon as we hear more on the situation.
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