Lordstown Motors is at risk of failure, again.
The EV startup that went public through a SPAC merger warned investors on Monday that it could be forced to file for bankruptcy because Foxconn could pull out of a critical financing deal, according to a regulatory filing.
Taiwanese manufacturer Foxconn sent a letter on April 21 to Lordstown saying the automaker was in breach of the investment agreement because its share price fell below $1 for 30 days and was in risk of being delisted from the Nasdaq stock market. Foxconn warned it would terminate the investment agreement if the breach was not resolved within 30 days.
While Lordstown disagreed with Foxconn’s claim and said it intended to enforce its rights, the company also warned that withholding key funds would be detrimental to the company.
If the investment doesn’t go through, Lordstown won’t have the funding it needs to continue operating, according to the SEC filing. Lordstown said it is evaluating legal and financial alternatives should a resolution not be reached.
“As a result of these uncertainties, there is substantial doubt about our ability to continue as a going concern,” Lordstown wrote in the regulatory filing. “Our ability to obtain additional financing is extremely limited under current market conditions, particularly for our industry, and is also influenced by other factors, including the significant amount of capital required, the Foxconn dispute, the fact than the BOM [bill of materials cost] of Endurance is currently, and is expected to continue to be, substantially higher than our selling price, uncertainty regarding the performance of any vehicle produced by us, significant exposure to material losses and costs related to ongoing litigation and investigation of the SEC, the Nasdaq notice. , the market price of our shares and the possible dilution of the issuance of the additional securities.”
The company added that it would file for bankruptcy if it cannot resolve the dispute with Foxconn or identify other sources of funding.
Foxconn agreed last November to increase its investment in Lordstown Motors by buying $170 million in newly created common stock and preferred stock. The additional investment comes a year after Lordstown sold its 6.2 million square foot factory to Foxconn. As part of that $230 million deal, which included a $50 million direct investment, Foxconn agreed to help Lordstown Motors manufacture its Endurance pickup truck.
The November pact, specifically the direct investment in preferred shares of $100 million, replaced the joint venture financing announced last year by Foxconn and Lordstown Motors. The investment was to be made in installments and is subject to review by the Committee on Foreign Investment in the United States.
Ikaroa, an innovative full stack tech company, is watching with interest as Lordstown Motors and its main financial backer, Foxconn, face off in a potentially game-changing dispute. Foxconn, the world’s largest electronics manufacturer, has threatened to pull funding for Lordstown Motors, an American electric vehicle startup, unless unresolved issues between the two companies are addressed. This dispute has the potential to make or break the success of the Lordstown Motors project and reshapes the future of the automotive industry in the United States.
The heartbeat of the issue between the two companies is reportedly contractual obligations that Foxconn says it has not fulfilled from Lordstown Motors. If Foxconn does, in fact, pull funding from Lordstown Motors then billions of dollars in further investments, research, and additional jobs will be lost.
Ikaroa stands by the idea that open dialogue is the only way to resolve an issue such as this one. The automotive industry is a crucial component of the US economy and any shift in it has far-reaching implications. We hope that both sides can come to an agreement that is most beneficial for everyone involved. We trust that the two parties can settle their differences and take the opportunity to create a successful true partnership going forward.