Commercial electric vehicle startup Lordstown Motors Corp. has recently filed for Chapter 11 bankruptcy protection. This move comes after the company issued a warning about its potential failure a couple of months ago.
In early May, Lordstown faced a setback when electronics company Foxconn showed hesitancy in investing $170 million in the company. Lordstown disclosed in a regulatory filing that it had received a notice from Foxconn on April 21, claiming a breach of their investment agreement due to Lordstown’s receipt of a delisting warning from Nasdaq a couple of days prior.
During that time, Lordstown expressed serious concerns about its ability to continue operating as a going concern, given the uncertainties it faced.
The trouble for Lordstown began when it was in danger of being delisted from the Nasdaq stock exchange. This happened because the closing share price of Lordstown fell below $1 on March 7 and continued to decline thereafter.
Foxconn informed Lordstown that it might rescind their agreement if the delisting issues were not resolved. In response, Lordstown informed Foxconn in May that it believed the breach allegations were unfounded. Additionally, Lordstown argued that the terms of the investment agreement did not grant Foxconn the right to terminate the deal after the initial closing.
On Tuesday, Lordstown announced that it had filed a lawsuit against Hon Hai Technology Group, a technology company, and certain affiliated entities, including Foxconn. The lawsuit alleges that Foxconn engaged in fraudulent behavior and consistently failed to fulfill its commercial and financial obligations to Lordstown. Lordstown claims that these actions by Foxconn caused significant harm to its business and its future prospects.
In addition to the lawsuit, Lordstown has also expressed its intention to sell its Endurance vehicle and related assets. By filing for Chapter 11 bankruptcy protection, the company aims to facilitate the sale process of the Endurance vehicle and expedite the timeline for resolving the lawsuit against Foxconn.
Lordstown made headlines back in November when it announced that it had received approval to ship the first batch of its inaugural model, the Endurance pickup truck. These trucks were manufactured at an old General Motors small-car assembly plant in Lordstown, Ohio, near Cleveland. The plant was acquired by Taiwan’s Foxconn Technology Group, which is recognized as the world’s largest electronics manufacturer.
Despite the challenging circumstances, Lordstown stated that it has a substantial amount of cash available and is free of debt.
The news of Lordstown’s Chapter 11 bankruptcy filing had a significant impact on the company’s stock, causing it to plummet by over 65% before the market opened.
