May 21, 2024

Westside People

Complete News World

Lordstown says it is at risk of bankruptcy if Foxconn backs out of the electric car deal

Lordstown says it is at risk of bankruptcy if Foxconn backs out of the electric car deal

Electric car startup Lordstown Motors said it could run out of money if its deal with iPhone maker Foxconn fails. The deal is in jeopardy after Foxconn notified Lordstown that it had breached its investment deal because its stock fell below $1 a share.

Lordstown has its origins in General Motors’ announcement in 2018 that it would close its Lordstown, Ohio plant. Then President Donald Trump attacked General Motors over the decision, which led to the automaker’s decision to sell the plant to a startup electric truck company called Workhorse.

Instead, Workhorse founder and former CEO, Steve Burns, created a new company called Lordstown Motors with a plan to build electric pickup trucks, centered around a prototype called Endurance. GM invested $75 million in the company, of which $25 million was in cash and another $50 million in “plant assets”, “plant permits” and plant operating costs.

Lordstown stock fell to less than $1 a share

Fast forward to mid-2022, and Lordstown has managed to sell the former General Motors plant to Foxconn for $230 million. The company later said it would loan space from Foxconn as it searches for contract manufacturers to help produce the Endurance electric pickup truck. Subsequently, Foxconn agreed to invest $170 million in Lordstown, which would amount to 19 percent of the company’s shares. So far, Foxconn has paid $52.7 million to Lordstown, but the rest of the investment is now at risk.

In April 2023, Foxconn told Lordstown that it had breached its agreement, According to a regulatory filing. Lordstown previously received a warning from Nasdaq that its share price had traded for less than $1 over the past 30 days, putting it at risk of being delisted. Lordstown responded that the allegations were “without merit” and that it was negotiating with Foxconn for a solution.

See also  The state of the stock market amid the banking crisis

But so far, Foxconn has refused to rescind its “invalid termination notice,” forcing Lordstown to tell its investors that if the money does not arrive, it will be “denied of funding essential to its operations.” Lordstown says it is evaluating “legal and financial alternatives in the event that no solution is reached”.