EV Startup Lordstown, Once an Ohio Town’s Savior, Files for Bankruptcy
EV truck maker sues investment partner Foxconn, claiming it reneged on deal to acquire Lordstown shares
Lordstown RIDE -7.21%decrease; red down pointing triangle Motors, the electric-truck startup once cheered by investors during the SPAC boom and lauded by former President Donald Trump as a savior for a closed General Motors factory in Ohio, has filed for bankruptcy, the company said early Tuesday.
Lordstown’s filing came after talks with its investment partner, Taiwan-based contract-manufacturing giant Foxconn Technology, for it to purchase $170 million in shares of the electric-truck maker fell through, Lordstown said.
Lordstown sold its northeast Ohio factory, a former GM plant, to Foxconn in November 2021, after the startup ran into production issues. As part of the deal, Foxconn and Lordstown agreed to cooperate on a series of new vehicles, which were to be produced at the plant.
Early Tuesday, Lordstown said it was filing for chapter 11 bankruptcy protection and would seek a buyer. At the same time, Lordstown sued Foxconn for fraud and breach of contract, alleging that the contract manufacturer’s actions “had the intended effect of destroying the business of an American start-up,” Lordstown said.
Foxconn said Tuesday that it had been in constructive negotiations with Lordstown to resolve its financial difficulties but that Lordstown had made “false comments and malicious attacks” against it and was reluctant to carry out their investment agreements. Further negotiations would be suspended, it added.
Lordstown is the latest company in a crop of aspiring EV manufacturers that have so far failed to deliver on their promises to revolutionize the car market. Many raised billions of dollars during the SPAC trend of a few years ago—reaping sensational gains on their initial public offerings—only to have their valuations deflate as they struggled to launch factory operations.
Lordstown once said it would produce hundreds of thousands of vehicles in the former GM plant in Lordstown, Ohio, but so far it has made only a handful of trucks. The company’s market capitalization has fallen to $47.49 million as of Monday, from a peak of about $5 billion in February 2021.
Even better-capitalized EV companies, including Rivian Automotive and luxury carmaker Lucid, have seen their cash piles and share prices dwindle. Both Rivian and Lucid have failed to meet earlier production goals as they faced parts shortages and manufacturing problems.
Market leader Tesla is a rare example of an EV company that survived its early years in the capital-intensive, low-margin auto industry. Tesla Chief Executive Elon Musk, who went through his own self-described “production hell,” last year referred to car factories as “gigantic money furnaces.”
Many of the companies that attempted to follow in Tesla’s footsteps, including Lordstown, haven’t benefited from the same level of investor patience and abundant access to capital.
In late 2019, Lordstown seemingly materialized out of nowhere as GM executives had been taking heat from Trump for the Ohio factory’s closure earlier that year. Steve Burns, the entrepreneur behind Lordstown, had run a little-known Cincinnati-area electric-truck maker, Workhorse Group, for more than a decade, and founded a number of ventures unrelated to the automotive industry.
“I am not happy that it is closed when everything else in our Country is BOOMING,” Trump said on Twitter in March 2019, the month GM closed the factory. After news of a potential sale surfaced, Trump heaped praise on GM.
Lordstown bought GM’s plant for $20 million in November 2019. GM later forgave the purchase obligation and other loans and interest in exchange for 7.5 million shares, according to a regulatory filing. GM unloaded its stake last year.
Burns promised to quickly hire workers and increase production at the 6-million-square-foot factory. The name of the company’s first vehicle, the Endurance EV pickup truck, was meant to evoke a sense of hope that people placed in the region’s potential revival.
Lordstown went public in late 2020 through a merger with a special-purpose acquisition vehicle. This form of public offering became popular with many EV and battery companies because it was faster than a traditional initial public offering and subject to fewer regulatory controls.
Burns said at the time that Lordstown raised approximately $675 million through the deal, “more than enough funding to get us through initial production.” The company said it had 100,000 preorders for the Endurance.
The sprawling Lordstown plant had been an example of American manufacturing prowess when GM opened it in 1966, producing some of Chevrolet’s best-known vehicles, including the Impala and Bel Air. At its peak, the plant produced 500,000 vehicles a year.
When it produced its last Chevy Cruze sedan in March 2019, the plant employed roughly 1,400 people. It became a symbol of the decline of American manufacturing jobs and sparked a wave of migration from the region.
As Lordstown geared up to start factory output, short seller Hindenberg Research in March 2021 cast doubts on the automaker’s claims of 100,000 orders, saying the company had paid a consultant to generate perceived demand ahead of the company’s public debut. Burns said that the company had paid consultants to generate preorders, but denied misrepresenting the company’s orders.
A later investigation by the board of directors found that the company made inaccurate disclosures about its preorders, resulting in the resignations of the CEO and finance chief.
The company soon ran into cash problems as costs grew faster than anticipated. In June 2021, Lordstown said it lacked the funds to start mass producing vehicles and could run out of money before the end of the year unless it raised additional funds.
In the fall of that year, Lordstown agreed to sell the factory to contract manufacturer Foxconn for $230 million, a deal that included an additional $50 million purchase of Lordstown stock by Foxconn. In return, Lordstown would contract out the manufacturing of its Endurance truck to Foxconn.
Lordstown’s financial troubles continued despite the lifeline from Foxconn. The EV startup again cut its 2022 vehicle-production forecast, to 50 trucks from a planned 500.
In November, Foxconn agreed to invest an additional $170 million by purchasing Lordstown shares in tranches, according to a regulatory filing. The EV startup said it would use the funds to hire engineers and pay for the production of vehicles.
Foxconn’s initial round of share purchases added $52.7 million to Lordstown’s coffers. The second round of share sales, around $47.3 million, was to occur after regulatory approval of the sale.
That approval came in late April, but the funds didn’t materialize, Lordstown said. A week prior, Lordstown reported that it had run afoul of Nasdaq’s listing rules because the company’s share price had dipped below $1 for an extended period. As a result of that notice, Foxconn sent a message on April 21 that Lordstown violated the investment agreement between the two companies.
Lordstown said it was seeking to enforce the agreement, and would have to curtail operations or seek bankruptcy protection if it was unable to raise additional funds. The company recently laid off workers, some of whom were subsequently hired by Foxconn, the EV maker said.
A Monday deadline passed with Foxconn refusing to purchase the additional shares, Lordstown said in its lawsuit. The startup decided a deal with Foxconn was no longer possible, leading it to file for bankruptcy protection, the suit says.