Foxconn’s threat to pull out of a significant financial contract has Lordstown Motors threatening bankruptcy. Lordstown Motors, an electric vehicle startup, disclosed on Monday that a finance contract with Foxconn is in peril, and the company may go bankrupt if the deal does not go through. The initial drop in share price was 25 percent.
In a regulatory filing made on Monday, Lordstown stated that it had received a letter from Foxconn on April 21 alleging that the startup was in breach of an investment deal because its stock had fallen below $1 per share for 30 consecutive trading days, which triggered a delisting notice from NASDAQ. The letter alleged the breach occurred because the startup’s stock had fallen below $1 for 30 consecutive trading days.
A year ago, the struggling new business agreed with the industry leader in contract manufacturing from Taiwan to sell its factory in Ohio. After the initial transaction between the two companies was finalized in May 2022, the two businesses agreed on a second transaction in which Foxconn would invest up to $170 million in Lordstown, equating to a 19.3% stake.
Last year, Foxconn made the initial payment of $52.7 million that was owed by that arrangement; however, the remaining balance and the deal itself are currently in peril.
Foxconn must invest $47.3 million within ten business days after receiving regulatory approval from the Committee on Foreign Investment in the United States by the agreement’s provisions. According to Lordstown, Foxconn successfully obtained that support on April 25, and as a result, the company is obligated to make that expenditure by May 8.
Lordstown has expressed its fear that further investment will not come in before the deadline and that Foxconn does not appear to be making a good-faith attempt to finish an electric vehicle plan, which is one of the deal’s milestones. Lordstown indicated that it is concerned that the deadline will not be met.
Foxconn must make an additional investment of $70 million after the two businesses fulfilled their agreement to finalize a plan to jointly create a new electric vehicle by the 7th of May. Lordstown claims that Foxconn is not making “commercially reasonable efforts” to complete the project, which is why it has not been finalized.
Lordstown claimed that Foxconn’s actions are “completely unwarranted” and have resulted in “material — and what is becoming irreparable — harm to the company.” Lordstown said this about the company’s situation.
In the document, Lordstown expressed concern that it would be compelled to seek bankruptcy protection if the Foxconn deal is unsuccessful. Despite suffering a loss of more than $100 million in the last quarter of 2022, the company ended the year with a cash balance of 221.7 million dollars.