Lordstown Motors Files for Bankruptcy After Failed Foxconn Partnership

Lordstown Motors, an electric-vehicle start-up, has filed for Chapter 11 bankruptcy protection after a deal with Hon Hai Precision Industry (2317.Taiwan), which is better known as Foxconn, fell through. This move dramatically highlights the importance of capital and strong partnerships for EV start-ups.

The failed partnership with Foxconn led to Lordstown’s decision to restructure and sue entities connected with Foxconn for fraud and breach of contract. Lordstown saw this partnership as a way to leverage their expertise in the EV industry and expand into a broader EV development platform.

CEO Edward Hightower stated, “Despite our best efforts and earnest commitment to the partnership, Foxconn willfully and repeatedly failed to execute on the agreed-upon strategy.”

In response, Foxconn denies these claims and reserves the right to pursue its legal action against Lordstown.

This situation with Lordstown Motors emphasizes that partnerships with trusted businesses are critical for an EV start-up’s success. Capital and strong partnerships can help these companies stay afloat and make an impact in the competitive EV industry.

Foxconn and Lordstown Motors Struggle to Reach Consensus

Foxconn and Lordstown Motors are struggling to reach a consensus after Foxconn threatened legal action against the electric vehicle (EV) start-up. Despite holding a positive attitude and engaging in constructive negotiations, both parties haven’t been able to find a solution that satisfies all stakeholders. The lack of progress has resulted in Foxconn contemplating taking baseless legal actions against Lordstown.

Lordstown’s Stocks Drop

Lordstown’s stocks dropped by 55% in premarket trading and are now trading at $1.23 a share, despite the S&P 500 and Nasdaq Composite futures rising by 0.2% and 0.4%, respectively. This drop comes after Lordstown completed a 1-for-10 reverse stock split in May, which means the shares are trading for just 12 cents apiece based on the share count at the start of the year.

Other EV Start-ups’ Stocks are Unaffected

The filing against Lordstown hasn’t impacted investors’ confidence in other EV start-ups. Canoo and Faraday Future Intelligent Electric’s stocks both grew by 2.9% and 1.8%, respectively. Meanwhile, Nikola, which produces battery and fuel cell-powered trucks, saw its stocks increase by 4.6%.

Keep an Eye on Lucid Shares

Investors should keep an eye on Lucid’s shares today, as they jumped 6% in premarket trading. The company announced a $1.8 billion private stock placement with the Saudi Public Investment Fund, which added about 13% to the shares outstanding. This means that the rest of Lucid’s investors now own less of the company. However, capital is more important at this point since it’s expensive to build a car business.

Lucid, Rivian, and Lordstown: A Look at Their Financials

As Lucid gears up for production of its luxury electric vehicles, Wall Street projects the company will spend around $10 billion before consistently turning a profit. At the end of the first quarter, Lucid had approximately $4 billion in liquidity. Analysts suggest that Lucid will begin to see profits once it generates roughly $13 billion to $14 billion in annual sales, with projections for 2023 sales coming in at around $1 billion.

Meanwhile, Rivian Automotive has almost $12 billion in cash on hand. Its shares rose 1.3% in premarket trading.

On the other hand, Lordstown Motors began its journey by buying a factory in Ohio from General Motors (GM) to prepare for production. However, after selling the factory to Foxconn as part of a deal to collaborate on new vehicles, production failed to take off. In fact, Lordstown only managed to deliver three vehicles in the fourth quarter of 2022 and had to pause production to address quality issues.

Despite raising around $675 million through a special purchase acquisition vehicle in 2020, Lordsdown’s financial struggles highlight the challenge of starting a car company. Even Tesla (TSLA) took approximately $9 billion in funding before turning a consistent profit in late 2019 when it was selling vehicles at roughly a 400,000 annual rate.

As the EV market continues to grow, it will be interesting to see how these companies and others navigate the often complex and expensive process of bringing new automobiles to market.

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