Lordstown warns that without the Foxconn agreement it will be ‘deprived of critical funding necessary for its operations’
Lordstown Motors Corp. stock tanked over 30% Monday after the EV maker said in a filing that Taiwanese electronics contract maker Foxconn wants to put the brakes on their deal, and warned that without the agreement it will be “deprived of critical funding necessary for its operations.”
Lordstown (RIDE) and Foxconn, also known as Hon Hai Technology Group, announced the first of several deals with the auto maker in late 2021 and in May 2022 Foxconn bought Lordstown’s factory as part of its investment in the Ohio-based company.
Foxconn’s deal staved off a going-concern warning that Lordstown issued in June 2021, shortly before the auto maker saw its then Chief Executive Steve Burns and Chief Financial Officer Julio Rodriguez resign and investors sued the company.
In the filing Monday, Lordstown said it expects Foxconn to hold its end of the deal. Without it, however, “the company will be deprived of critical funding necessary for its operations,” it said. “The company is evaluating its legal and financial alternatives in the event a resolution is not reached.”
Foxconn, which makes electronics such as smartphones and gaming consoles for major companies around the world, including Apple Inc.’s (AAPL) iPhone, agreed to make additional equity investments in the auto maker of up to $170 million in common stock and convertibles, according to the filing. Conditions included regulatory approvals and EV milestones.
Foxconn then bought about $22.7 million in common stock and $30 million in preferred stock. According to the deal, Foxconn was required to buy additional batches of common stock, worth about $47.3 million and $70 million, within a timeline that included the regulatory approvals and the EV milestones.
Regulatory clearance was received last week, putting Foxconn on track to buy additional shares by May 8. The two parties have to agree on the EV program milestones by May 7.
Throwing a wrench on these dealings, however, Lordstown said in the filing that it received a letter from Foxconn saying that it was in breach of the investment agreement because it was out of compliance with Nasdaq listing rules.
Lordstown stock has traded under $1 since early March. Foxconn threatened to end the deal if that breach is not resolved in 30 days. In February, Lordstown recalled the 19 Endurance electric pickup trucks in use and halted production and deliveries of future EVs.
Lordstown said in the filing that it considers Foxconn allegations “without merit,” and that Foxconn itself is in breach of the agreement, since it never made an effort to approve the EV milestones to launch the funding.
“Therefore, (Lordstown) believes that the investment agreement remains in effect, intends to enforce its rights thereunder,” the company said in the filing. Lordstown and Foxconn are “in discussions” to seek a resolution, but Foxconn has not confirmed it will go ahead with the additional stock investment, Lordstown said.
Foxconn officials in Taiwan could not be immediately reached for comment.
Shares of Lordstown are down 84% in the past 12 months vs. a gain of 1.3% for the S&P 500 index.