Lordstown Motors, a U.S. electric truck manufacturer, has filed for bankruptcy protection and initiated legal action against Taiwan’s Foxconn due to a dispute over a promised investment. This development has had a significant impact on Lordstown Motors, as its shares plummeted 60% during pre-market trading.
The bankruptcy filing by Lordstown Motors has raised concerns about the future of electric vehicle (EV) startups. Thomas Hayes, the chairman at hedge fund Great Hill Capital, believes that the era of successful EV startups is waning, with Tesla and traditional incumbents expected to dominate the market going forward.
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Lordstown Motors, named after the Ohio town where it is headquartered, has filed for Chapter 11 protection in Delaware. Simultaneously, the company has accused Foxconn of fraudulent conduct and broken promises regarding an agreement to invest up to $170 million in the electric vehicle manufacturer.
According to Lordstown Motors, Foxconn failed to fulfill its investment commitment and misled the automaker about collaborating on vehicle development plans. Foxconn, a well-known electronics company that assembles Apple’s iPhones, claims that Lordstown breached the investment agreement when its stock fell below $1 per share. Foxconn has stated that it maintained a positive attitude during negotiations with Lordstown but accused the U.S. firm of reluctance to adhere to the investment agreement’s terms.
This clash between Lordstown Motors and Foxconn has broader implications for Foxconn’s EV ambitions and partnerships, not only with Lordstown but also with other automakers. Lordstown alleges that Foxconn constantly changed its collaboration objectives and failed to meet funding commitments.
Lordstown Motors’ main product is the Endurance electric pickup truck, manufactured at a former General Motors small-car factory in Lordstown. The company paused production of the Endurance earlier this year but resumed at a slower pace after addressing quality issues with suppliers.
In its bankruptcy filing, Lordstown expressed its intention to find a buyer and seek the restart of full production for the Endurance. However, no initial offer, known as a stalking-horse bidder, has been secured yet. Lordstown CEO Edward Hightower believes the Endurance business could attract another automaker seeking a quick entry into the EV market, especially with the Biden administration’s focus on transitioning away from gasoline-powered vehicles.
Lordstown Motors’ bankruptcy is not the first among EV startups that went public during the pandemic-era Special Purpose Acquisition Company (SPAC) boom. However, Lordstown’s high-profile status stems from its challenge to the core business of legacy Detroit automakers, particularly in the lucrative pickup truck segment. The location of Lordstown’s factory in Northeast Ohio, which was previously a GM small-car factory, further adds to its significance.
Similar to other EV startups, such as Nikola, Lordstown has faced challenges meeting early investors’ high expectations. The company’s founder and former CEO, Stephen Burns, resigned in 2021 after Lordstown acknowledged overstating pre-orders for its electric trucks. Lordstown has also dealt with regulatory investigations and scrutiny from the U.S. Justice Department. During this period, Ford Motor, Rivian, GM, and Stellantis have all made strides in the EV pickup truck market, with Tesla planning to launch its Cybertruck later this year.
Source: Reuters
