After a troubled year, Lordstown Motors filed for Chapter 11 bankruptcy on Tuesday, putting itself up for sale. The filing came two months after it posted a going concern notice as a result of a deal falling through with Taiwanese tech company Foxconn. Now, Lordstown is suing it for fraud and breach of contract.
The partnership began in 2021 when Foxconn purchased Lordstown's Ohio-based factory, formerly owned by General Motors, for $230 million to build Lordstown flagship vehicle, the Endurance pickup. Production of the vehicle was suspended in January as supply chain issues made manufacturing costs exceed the truck’s $65,000 sale price.
In November, Foxconn announced its plan to agree to invest $170 million into the truck company. However, when Lordstown stock fell below $1 in March of this year and was in danger of being delisted, Foxconn began to renege on the deal unless it regained its listing status.
In May, Lordstown told Foxconn that it didn’t believe the delisting threat constituted a breach of contract and that the company was still obligated to uphold the deal. But, it did manage to push its share price above the $1 mark through a reverse stock split that month. At the time, Foxconn had already invested $52.7 million and owned just over 8% of the company. The remaining $117.3 million investment would have upped that stake to 19%.
In the lawsuit, Lordstown alleged that Foxconn had never intended to follow through on the deal in an effort to force it into bankruptcy.
“After getting the valuable assets it desired upfront, it then sabotaged the debtors’ 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,” said the complaint.
Talks between the two had been ongoing until the filing and lawsuit. Foxconn said in a statement to CNBC it had hoped to find a solution to “satisfy all stakeholders” without legal action. But due to the lawsuit and what it said were Lordstown’s attempts to “mislead the public,” it is suspending talks and may take legal action.
The entire Lordstown business is up for sale, which executives said had “significant” cash on hand and no debts. Business will continue as normal through the bankruptcy process.
"We remain confident that an orderly, expedited sale process will maximize value for our stakeholders and enable the talent and technology behind the Endurance to find new and supportive ownership," CEO Edward Hightower said.
Shares of Lordstown (Ticker: RIDE) dropped 65% before market open, opening at $1.15. Over the past 6 months, it has had a steep downward trend, with a February high of $22.05. Its current market capitalization is $30 million.
