By Mike Spector, Joseph White and Dietrich Knauth
NEW YORK (Reuters) – Lordstown Motors filed for bankruptcy protection on Tuesday and put itself up for sale after the U.S. electric truck maker failed to resolve a dispute over a promised investment from Taiwan’s Foxconn.
Shares in Lordstown fell 35.6% in pre-hours trading.
The automaker, named after the city in Ohio where it is based, filed for Chapter 11 protection in Delaware while also taking legal action against Foxconn.
In a complaint filed in bankruptcy court, Lordstown accused the electronics company of misconduct and a series of broken promises by failing to honor an agreement to invest up to $170 million in the electric vehicle maker.
Foxconn previously invested about $52.7 million in Lordstown as part of the deal, and currently has a nearly 8.4% stake in the electric car maker. Lordstown alleges that Foxconn is looking to buy additional shares of the stock that promised and misled the electric car maker to cooperate on vehicle development plans.
Foxconn, formally called Hon Hai Precision Industry and best known for assembling Apple̵[ads1]7;s iPhones, has said Lordstown breached the investment agreement as the automaker’s stock fell below $1 a share. Foxconn did not immediately respond to a request for comment.
The twins set up an international business clash that could intensify scrutiny of Foxconn’s EV ambitions and partnerships not just with Lordstown but other automakers as well.
The lawsuit portrays Foxconn as consistently shifting goalposts in its cooperation with Lordstown on the automaker’s future vehicles, which included failing to meet financing commitments and refusing to engage with the company on initiatives Foxconn had allegedly directed and purported to support.
Lordstown, a startup launched in 2018, said in a regulatory filing earlier this month that it had planned to sue Foxconn after receiving a letter from the company that led Lordstown to believe that Foxconn was unlikely to make its expected additional investment.
Lordstown accused Foxconn in the regulatory filing of engaging in a “pattern of bad faith” that caused “material and irreparable harm” to the company. Even in May, Lordstown warned it could be forced to file for bankruptcy amid uncertainty surrounding the Foxconn investment.
The automaker’s flagship product is the Endurance electric pickup truck, which is built at a former General Motors small car plant in Lordstown, Ohio, for commercial customers such as local governments. Lordstown sold the plant to Foxconn in 2022.
Lordstown stopped production of the Endurance earlier this year and since April has resumed building the trucks at a low speed after resolving quality issues with suppliers. The automaker’s shares have plunged since February and are currently trading below $3.
Should Lordstown not find a savior willing to restart full production of the Endurance, the Ohio plant now owned by Foxconn could be a draw for foreign automakers looking for a quick way to build vehicles in the United States.
Lordstown filed for bankruptcy with plans to seek a buyer. It does not have a first offer in hand, known in bankruptcy parlance as a stalking-horse bid, which sets a minimum price other suitors can top in an auction.
Lordstown CEO Edward Hightower told Reuters the Endurance business could prove attractive to another automaker looking for a quick entry into the electric car market at a time when the Biden administration’s policies are trying to move away from gasoline-powered cars.
Lordstown’s bankruptcy is not the first among the crop of EV startups that went public during the pandemic SPAC boom. But Lordstown was a high-profile member of that class because it challenged the core of the old Detroit automakers’ high-margin pickup truck business, and because of its location.
The Lordstown plant in Northeast Ohio was a former GM small car plant that GM decided to close in November 2018. Then-US President Donald Trump and other Ohio political leaders put pressure on GM CEO Mary Barra to reverse the decision, or find a buyer . GM agreed to sell the plant to a newly created entity called Lordstown Motors founded by the former chief executive of an electric truck maker called the Workhorse Group.
Lordstown went public in October 2020 through a reverse merger with specialty buyout firm DiamondPeak Holdings, joining a flock of EV startups to go public through such deals during that period.
Like several others, including truck maker Nikola, Lordstown has struggled to live up to the lofty expectations of early investors. In 2021, its CEO and founder, Stephen Burns, resigned after the automaker acknowledged that it had overestimated pre-orders for its electric trucks.
Lordstown’s chief financial officer at the time also resigned. Burns has since sold his entire stake in Lordstown, according to a June regulatory filing.
While Lordstown during 2021 and 2022 wrestled with investigations by regulators and the US Department of Justice, Ford Motor launched its electric F-150 Lightning pickup, aimed at commercial customers.
EV startup Rivian launched its luxury electric pickup in 2022. GM and Stellantis have announced plans for electric pickups. Elon Musk’s Tesla has promised that it will start producing its Cybertruck late this year.
Lordstown has struggled to increase production of its Endurance trucks in recent months amid the dispute with Foxconn, challenging market conditions and the cost-intensive business, the company has said.
The few trucks the company assembled had material costs that were “substantially higher than our selling price,” Lordstown said in a regulatory filing in May.
(Reporting by Mike Spector in New York, Joseph White in Detroit and Dietrich Knauth in New York Editing by Nick Zieminski and Dhanya Ann Thoppil)