(Bloomberg) -- When Foxconn agreed in November to invest as much as $170 million in Lordstown Motors, the deal looked like a much-needed financial lifeline for the fledgling electric-vehicle maker.
Fast forward six months, and a dispute between the two partners threatens to sink the US startup.
The iPhone maker hasn’t yet made good on its pledge to acquire enough Lordstown shares to build a 18.3% stake in the company. So far, the Taiwanese manufacturer has bought just under $53 million in common and preferred stock, and its ownership remains at 8.4%. Consummating the deal would nail down a key joint operating agreement Lordstown needs to build its next EV.
Instead, Lordstown early this month said it may be forced to cease operations and file for bankruptcy after Foxconn told the startup it’s prepared to pull out of the production partnership.
The dispute bears all the signs of a classic case of buyer’s remorse. Foxconn had paid $230 million for Lordstown’s factory in Ohio, where it planned to make the company’s debut vehicle under contract. But Lordstown later asked Foxconn to suspend production because the cost of making the Endurance pickup truck exceeded the targeted sale price of $65,000 — and said it would need another partner beyond Foxconn to share costs. No such partner has come forward, and Lordstown’s shares have plummeted 96% since October 2021, when the Ohio deal was first announced.
The cracks in the partnership widened in March and April, when Lordstown’s common stock traded below $1, resulting in a notice from Nasdaq that its listing on the exchange is at risk. On April 21, Lordstown received a letter from Foxconn saying it would walk away from the partnership if a remedy isn’t found within 30 days — a deadline that ended on the eve of Lordstown’s annual meeting. At the May 23 event, shareholders approved a reverse stock split to prop up the shares and keep the company on the Nasdaq.
It’s unclear if that move can salvage things. While Lordstown “remains willing to negotiate with Foxconn in an effort to resolve its disputes, no agreement currently exists and the company cannot predict whether such an agreement will be reached in the future,” the US company said this week.
A spokesman for Foxconn didn’t return text messages and emails seeking comment. A spokeswoman for Lordstown said the company believes Foxconn should make good on the agreement.
Foxconn trying to wrangle its way out of the Lordstown partnership is reminiscent of the boom-and-bust craze for EV investments of the pandemic years. At their highs, the likes of Lordstown, Nikola, Fisker, Canoo and Arrival, which went public through mergers with special purpose acquisition companies, were worth $60 billion. The corrections that followed have been brutal.
Nikola tumbled Thursday after Nasdaq notified the company that it isn’t in compliance with the minimum bid requirements to remain listed on the exchange. Rivian, among the best-capitalized EV startups, is down roughly a fifth this year amid difficulties to ramp up output. Even industry leader Tesla has plummeted some 53% since its Nov. 2021 peak.
Companies — and investors, for that matter — are realizing that retooling assembly plants, building battery factories and creating a reliable and cost-efficient supply chain is no easy feat. Foxconn may be having a similar epiphany. The iPhone maker has made grand predictions for its auto business, saying it will generate $33 billion in annual revenue by 2025. But its actual carmaking record remains miniscule.
When it bought the Ohio plant, Foxconn likely saw a good opportunity to gain a foothold in the rapidly developing US electric-vehicle market. Now it appears its attorneys are doing more work on Lordstown than its engineers.
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