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Electric car startup Lordstown Motors warned in a SEC filing on May 1st that it could go bankrupt if an investment deal with Foxconn was not reached.

Lordstown Motors filings show that Foxconn intends to stop investing in Lordstown Motors on the grounds that Lordstown Motors violates the investment agreement. The source pointed out that if Foxconn withdraws its capital or means that Lordstown Motors will lose its operating funds, it will be forced to stop operations and file for bankruptcy. Or affected by the news, the company's share price halved in intraday trading, falling more than 50% at the deepest.

On November 7, Lordstown signed an investment agreement with Foxconn, in which Foxconn agreed to buy $70 million worth of Class A common shares and $100m worth of convertible preferred shares. On the 22nd of the same month, the two sides completed a preliminary transaction in which Foxconn bought about $22.7 million of Class A common shares and $30 million of preferred shares. But on April 21, Lordstown received a letter from Foxconn claiming that it had violated the original investment agreement because its share price fell below the $1 threshold needed to list on the Nasdaq global market. Foxconn said it would terminate the investment agreement if the issue was not resolved within 30 days because Nasdaq issued a notice to Lordstown Motors warning that its shares could be delisted.

"if we fail to resolve the dispute with Foxconn in a timely manner and agree on terms that allow us to continue as planned, find other sources of funding, find strategic partners and resolve significant potential liabilities, we may need to reduce or stop operations and seek the protection of the bankruptcy law by submitting voluntary applications," Lordstown said in a statement. The company added: "Foxconn's actions are totally unjustified and their actions have caused material and irreparable damage to the company."

In response, Hon Hai (parent company of Foxconn) said in its latest statement that the company had sent a letter to Lordstown Motors Corp. (LMC) because it had been notified by the NASDAQ exchange that its share price could not be maintained above $1 for a long time, which had violated the previous investment agreement between the two sides. Hon Hai had previously issued a formal letter demanding that the LMC must resolve the breach of agreement. Therefore, Hon Hai strongly opposes the LMC accusation that our company is in breach of contract. In the meantime, Hon Hai understands that LMC is evaluating the improvement plan, and we are still willing to continue to negotiate with LMC in order to reach a mutually acceptable outcome that is beneficial to their respective stakeholders.

Foxconn, founded in 1988, is a well-known technology company in "the world's largest electronic contract manufacturer". In 2007, it became Apple's largest contract manufacturer for manufacturing iPhones, so it has become a well-deserved "king of contract manufacturing" in the industry. Foxconn entered the car manufacturing industry in 2005, but at that time it focused more on signing contracts with Apple for mobile phone manufacturing. It was not until 2013 that Foxconn accelerated its layout of the car supply chain market and became a supplier to BMW, Tesla, Mercedes-Benz and other car companies.

At the end of 2020, Foxconn revealed that it had entered the electric car market and accelerated the layout of the electric vehicle field. In January 2021, Foxconn Technology Group signed a strategic cooperation framework agreement with Baiteng Motor and Nanjing Economic and technological Development Zone. The three parties worked together to promote mass production of Baiteng new energy vehicles and said that they would achieve mass production of M-Byte by the first quarter of 2022. However, the partnership between Foxconn and Baiteng has been shelved because of the deterioration of Baiteng's financial situation. On October 18 of the same year, Foxconn unveiled three electric vehicles, including electric buses Model T and SUV Model C, and Model E, a business luxury car. This is the first time that Foxconn has shown its products to the outside world since Foxconn announced the construction of the car.

But the pace of this form of layout is too slow for Foxconn, so it has turned to start-ups with production plants, including Lordstown Motors, the new power car company. That year, Foxconn quickly partnered with Lordstown Motors to acquire the qualification to build cars in the United States, and completed its first deal in May 2022. At the time, Foxconn bought Lordstown's plant in Ohio for $230 million, Foxconn's first car plant to make electric pickups. After buying the plant, Foxconn also plans to form a joint venture with Lordstown Motors, MIH EV Design LLC, with a stake of 45:55, which develops electric car products based on Foxconn's open source Mobility-in-Harmony (MIH) platform. At the same time, the two sides also signed a contract under which Foxconn will be responsible for the production of Lordstown's first car products and production of new cars will begin at the end of 2022, but disappointingly, Foxconn was forced to stop production of only 40 cars for the Lordstown Motors throughout the partnership.

In January, Lordstown Motors asked Foxconn to suspend production because of cost control problems that caused the electric pickup model Endurance to cost more than its $65000 price, and power outages while driving in cold weather, which also raised questions about Foxconn's ability to mass-produce electric cars. On February 23rd, Lordstown announced the suspension of production and delivery of Endurance pure electric pickup trucks to resolve performance and quality problems of some components.

So why should Lordstown Motors sell the factory to Foxconn and then produce it instead of Foxconn when it has full-vehicle production capacity?

Lordstown Motors is a new car-building brand in the United States, founded in 2018 by Steve Burns, former CEO (CEO) of American freight truck manufacturer Workhorse, and is headquartered in Lauderstown, Ohio. The company acquired GM's Lordstown plant in May 2019, merged with a shell company named DiamondPeak Holdings in October of the same year, and listed on Nasdaq as a special acquisition company (SPAC). At the initial stage of listing, the new power was valued at $1.6 billion, but the good times did not last long. Lordstown Motors quickly burned up all the cash raised through the SPAC merger, and it was still unable to achieve mass production three years after its establishment. The sale of GM's Lodstown plant to Foxconn is an important part of getting rid of heavy assets and alleviating financial pressure.

So far, it is not clear whether Lordstown Motors will declare bankruptcy in the future, but as a new power car company, the production of Lordstown Motors's electric pickup model Endurance is not going well, but on the 18th of last month, Lordstown Motors announced that production and delivery of the car had returned to normal. Lordstown had a cash balance of $121.4 million at the end of the fourth quarter, down from $154.2 million in the previous quarter, with revenue of $194000 in the fourth quarter of last year, below analysts' estimates of $1.29 million, and net loss widened to $102.3 million from $81.2 million in the same period in 2021, including $36.5m in impairment charges mainly due to a fall in its share price. At the time, Lordstown also expressed doubts about the company's ability to continue to operate.

Foxconn, on the other hand, has ambitions for car races, even though it is not from the auto industry. Previously, Hon Hai Chairman Liu Yangwei had said he wanted to become the Android of electric vehicles, and in January, Foxconn hired Seki Jun, a former Nissan deputy COO, as the company's chief strategy officer for electric vehicles. According to the plan, Foxconn expects its car business to generate $33 billion in annual revenue by 2025 and account for 5 per cent of the global electric car market, while in its long-term plan, Foxconn, which is positioned as a contract manufacturer, wants half of the world's electric cars to come from its factories.

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