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Lordstown Motors Files for Bankruptcy and Puts Itself up for Sale Over a Failed Investment Deal
The Bankruptcy and Legal Action Against Foxconn
Lordstown Motors Corp, an Ohio-based US electric truck manufacturer, filed for bankruptcy protection after failing to resolve its investment dispute with Taiwan company, Foxconn. In a parallel legal action against Foxconn, Lordstown accused the electronics company of fraudulent conduct and breaking promises as part of an agreement to invest up to $170 million in the electric-vehicle manufacturer. Foxconn previously invested about $52.7 million in Lordstown and currently holds an approximately 8.4% ownership stake in the EV maker. Lordstown has accused Foxconn of misleading the EV maker about collaborating on vehicle development plans and is balking at purchasing additional shares of its stock as it promised.
A Business Clash Between Two International Companies
The twin filings of the bankruptcy and lawsuit set up an international business clash that could intensify scrutiny of Foxconn's EV ambitions and partnerships, not only with Lordstown but also with other automakers. The lawsuit portrays Foxconn as consistently shifting goal posts in its collaboration with Lordstown on the automaker's future vehicles.
The Future of Lordstown's Endurance Electric Pick-Up
Lordstown Motors' main product is the Endurance electric pickup truck, which is built at a former General Motors small-car factory in Ohio for commercial customers such as local governments. Should Lordstown fail to find a rescuer willing to re-start full production of the Endurance, the Ohio factory, now owned by Foxconn, could be a draw for overseas automakers looking for a quick way to build vehicles in the United States.
The Challenges of Lordstown Motors
Lordstown went public in 2020 through a reverse merger with special purpose acquisition company DiamondPeak Holdings. Like several others, including truck maker Nikola, Lordstown has struggled to live up to the high expectations of early investors. In 2021, Lordstown's former CEO and founder, Stephen Burns, resigned after the automaker overstated pre-orders for its electric trucks. Lordstown's finance chief at the time also resigned. As Lordstown wrestled with investigations by regulators and the US Justice Department, Ford Motor was launching its electric F-150 Lightning pickup truck, aiming at commercial customers. Ev startup Rivian launched its luxury electric pickup in 2022. GM and Stellantis planned for electric pickups, and Tesla has promised it will begin producing its Cybertruck late this year.
Future Prospects for the EV Market
Lordstown's bankruptcy is not the first among the crop of EV startups that went public in the pandemic-era SPAC boom. As the Biden Administration's policies attempt to move away from gasoline-powered cars, Lordstown CEO Edward Hightower told Reuters that the Endurance business could prove attractive to another automaker looking for fast entry into the EV market.
Lordstown Motors' bankruptcy and legal battle with Foxconn display the challenges electric vehicle (EV) startups may face as they struggle to stay profitable and keep pace with their rivals. The bankruptcy of Lordstown Motors highlights the uncertainty of investing in new EV companies, especially those with limited track records. This outcome presents an opportunity for potential startups to scrutinize their deals and start small to ensure stable financials and growth. The EV market is still evolving and remains a challenging and capital-intensive industry that requires long-term investments. Therefore, new electric vehicle businesses should be innovative and unique to differentiate themselves from their competitors. The future of electric vehicles is promising, given the increasing focus on renewable energy in today's climate. However, startups in this industry must take calculated risks, ensure sound financials, and have a thorough knowledge of their market and buyers. Overall, Lordstown Motors serves as a reminder to new EV businesses that they should tread carefully and plan well in order to succeed.