AutoBeta(AutoBeta.net)06/28 Report--

Electric car startup Lordstown Motors filed for bankruptcy protection in Delaware court on June 27th after it failed to resolve an investment dispute with Foxconn. At the same time, the company filed a lawsuit against Foxconn while starting the sale process.

In a complaint filed in bankruptcy court, Loddtown accused Foxconn of fraud, breaking its promise and failing to abide by a previous agreement to invest $170 million in it. It is understood that before filing for bankruptcy protection, Foxconn had invested about $52.7 million in Loddtown Motor and currently holds a stake of about 8.4 per cent. Loddtown Motor believes that Foxconn is unwilling to buy more shares as promised and may have been hampered by Loddtown's further development of its products because of the slow pace of mass production.

In response to the lawsuit against Foxconn by Lodstown Motor, Foxconn Group Hon Hai (parent company of Foxconn) issued a statement on June 28, alleging that Lordstown Motors Corp. (LMC) has been trying to mislead Volkswagen and is unwilling to abide by the terms of the investment agreement between the two sides. During this period, Hon Hai has been holding a positive attitude to conduct constructive negotiations with LMC to help it solve the financial difficulties caused by its operation. Hon Hai had hoped to continue the discussions in the hope of reaching a solution satisfactory to all stakeholders, rather than taking groundless legal action, but so far the two sides have not reached a consensus.

In fact, as early as May this year, Loddtown Motor filed a "possible bankruptcy" warning document to the Securities and Exchange Commission (SEC), saying that it might go bankrupt if the investment agreement with Foxconn was not reached, and pointed out that Foxconn intended to stop investing in Loddtown Motor on the grounds that Loddtown Motor violated the investment agreement. Hon Hai responded at the time that it had sent a letter to LMC because it had been informed by the Nasdaq exchange that its share price could not be maintained above $1 for a long time, in violation of 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.

On November 7, 2022, Loddtown Motor signed an investment agreement with Foxconn, which 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, Loddtown 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 Loddtown Motor warning that its shares could be delisted.

Data show that Lordstown Motors (Lodstown Motor) is a new power car-building brand in the United States, founded by Steve Burns, former CEO of Workhorse, a US freight truck manufacturer (CEO), in 2018 and headquartered in Lodstown, Ohio.

Loddtown Motor said it had received orders for more than 100000 cars after it acquired GM's Lodstown plant in May 2019, merged with a shell company called DiamondPeak Holdings in October of the same year, and listed on Nasdaq as a special acquisition company (SPAC). The new power was initially valued at $1.6 billion. But soon, Hindenburg Research, a well-known short seller, pointed out in a report released in 2021 that Loddtown's 100000 pre-orders were "mostly fake and used as props to raise capital". Then the New York court and the SEC began to investigate Loddtown cars. So far, the incident is still under investigation. Meanwhile, Loddtown Motor has been hit hard by burning all the cash raised through the SPAC merger and is still unable to achieve mass production after three years.

The development of Loddtown Motor took a turn for the better in 2021. At that time, Loddtown Motor sold the General Motors Lodstown plant to Foxconn, hoping to ease the financial pressure, while Foxconn, which is eager to acquire the qualification to build cars in the United States, also rushed to cooperate with Loddtown Motors. The two sides also reached a cooperation model that "Loddtown Automobile is responsible for vehicle development, Foxconn is responsible for investment and production."

For Foxconn, buying factories would give it the qualification to build cars in the United States, while Loddtown could get a "blood transfusion" to continue to build cars. But in fact, the cooperation between the two sides is not smooth.

In May 2022, Foxconn bought the Loddtown car 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 Lodston Motor, MIH EV Design LLC, with a stake of 45:55, which develops electric vehicle products based on Foxconn's open source Mobility-in-Harmony (MIH) platform. At the same time, the two sides also signed a contract for the production of Lodston's first car product by Foxconn, and new car production began at the end of 2022. Foxconn was forced to stop production of only 40 cars for Loddtown cars.

In January, Loddtown asked Foxconn to suspend production in a statement because cost control problems caused the electric pickup model Endurance to cost more than the model's $65000 price, while the electric pickup suffered power outages while driving in cold weather, which also raised questions about Foxconn's ability to mass-produce electric cars. On February 23rd, Lodstown announced the suspension of production and delivery of Endurance pure electric pick-up trucks to address performance and quality problems with some components. It was not until April 18 that Loddtown announced that production and delivery of the car had returned to normal.

As for Loddtown cars, why should the factory be sold to Foxconn and then produced by Foxconn when it clearly has the production capacity of the whole vehicle? "Automotive Industry concern" believes that it is mainly related to its financial pressure.

At the end of the fourth quarter of 2022, Loddtown had a cash balance of $121.4 million, down from $154.2 million in the previous quarter, and revenue of $194000, below analysts' estimates of $1.29 million, according to the data. the 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 the price of its shares. At the time, Loddtown Motors also said it had doubts about the company's ability to continue to operate.

As Loddtown Motor filed for bankruptcy protection, it means that Foxconn car contract manufacturing may end in "failure".

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