LORDSTOWN, Ohio — The partnership between Lordstown Motors (LMC) and Foxconn may be heading for a divorce.
In a filing to the Securities and Exchange Commission (SEC) this week, LMC says that Foxconn has acted in "bad faith" in not fulfilling an agreement to purchase 10% of the company for $47.3 million. Lordstown Motors added the actions of Foxconn "caused material and irreparable harm to the company" and says it will file litigation "absent a prompt resolution."
Taiwan’s Foxconn Technology Group, the world’s largest electronics maker, entered into a purchase deal with LMC in 2022. Foxconn assumed manufacturing operations at the Lordstown plant and took over the employment of approximately 400 LMC workers.
So what went wrong?
Despite plenty of optimism after the deal between Lordstown and Foxconn, LMC has struggled to launch its Endurance electric truck.
On Feb. 23, the company announced that it was suspending production and delivery of its Endurance electric trucks due to "performance and quality issues" with certain components. In addition, the company filed paperwork with the National Highway Traffic Safety Administration (NHTSA) to voluntarily recall the Endurance "to address a specific electrical connection issue that could result in a loss of propulsion while driving."
LMC's pause in production lasted nearly two months. While the pause was taking place, CEO Edward Hightower told stockholders in March that because of the costs involved, another halt on the production of the Endurance could take place if LMC was unable to obtain a partnership with another manufacturer.
As of late May, Lordstown Motors has built 56 Endurance vehicles and delivered 18 to customers, 12 since resuming deliveries in late April.
Amid the production difficulties, LMC says it received notice from Foxconn on April 21 that it was in breach of their investment agreement because it had gotten a delisting warning from Nasdaq two days earlier.
Lordstown was in danger of being delisted from the Nasdaq because its share price closed below $1 on March 7 and had not recovered by mid-April. Foxconn told Lordstown that it may unwind the agreement if Lordstown did not resolve its listing issues.
In an effort to increase its market price, LMC announced a 1:15 reverse stock split on May 23. The move automatically caused each 15 shares of LMC's issued and outstanding common stock to be combined into one share. "A higher market price can make the Class A common stock more attractive to a broader range of institutional investors, professional investors, and other members of the investing public," LMC said in its release.
A difference of opinion
In its SEC filing, Lordstown Motors says Foxconn believes the reverse stock split gives it the right to purchase a windfall of over 60% of LMC's stock for $47.3 million.
"There is no basis to suggest that the Investment Agreement contains an implied adjustment term to account for LMC’s reverse stock split," Foxconn wrote to LMC in a letter dated June 5, 2023. Foxconn says it can purchase nearly 27 million shares of LMC stock for $1.76 per share "without any limitation or condition."
Two days later, LMC struck back, claiming that Foxconn was inventing another reason for failing to honor its obligation after it got its share price over $1 after the reverse stock split.
"It cannot be a coincidence that only now, after Foxconn’s pretext for failing to close has been removed, that you raise this new, and equally baseless, argument that Foxconn can now acquire 62.8% of the outstanding common stock, effective control of the Company, for the same price it agreed to pay for 10%," LMC wrote.
Lordstown Motors closed its letter to Foxconn with a stern message. "Whether Foxconn’s most recent maneuver is another effort to sabotage the Subsequent Common Closing or an attempt to capture a windfall and seize control of the Company, it will not succeed."
You can read LMC's filing to the SEC and the letters between Lordstown Motors and Foxconn below.
What's next for LMC?
In the May 23 announcement about the reverse stock split, LMC informed its stockholders that unless it was able to solve its dispute with Foxconn, it might be forced into bankruptcy.
"Our ability to obtain additional financing is extremely limited under current market conditions," the company stated. Some of those conditions include:
- The Foxconn dispute
- The cost of the materials and components to make the Endurance "is currently, and expected to continue to be, substantially higher than our selling price."
- The Nasdaq notice
- The uncertainty surrounding the performance of any vehicle produced by LMC
"If we are unable to resolve our dispute with Foxconn in a timely manner on terms that allow us to continue operating as planned, identify other sources of substantial funding, identify a strategic partner and resolve our significant contingent liabilities, we may need to further curtail or cease operations and seek protection by filing a voluntary petition for relief under the United States Bankruptcy Code," LMC stated.
The Associated Press contributed to this story