Electric truck maker Lordstown Motors (NASDAQ:RIDE) warned investors this week that it may seek federal bankruptcy protection following the refusal of major shareholder Foxconn to invest as much as another $117 million in the Ohio company.
“We may need to curtail or cease operations and seek protection by filing a voluntary petition for relief under the Bankruptcy Code,” Lordstown warned investors in a U.S. Securities and Exchange 8-K filing Monday.
The fledgling truck maker’s share price has fallen below $1/share, and it could be delisted from trading.
Monday’s announcement accelerated the decline of Lordstown’s share price, which fell below $1 on March 7 and remained there for 10 days, prompting the Nasdaq to warn on April 19 that it would delist the shares unless the price recovered to more than $1 for 10 consecutive days by Oct. 16.
The company made the Nasdaq’s warning public in an 8-K the same day it received it.
That prompted Foxconn to put the brakes on additional investments until the share price increased, declaring in a letter to the company on April 21 — only publicly revealed in this week’s 8-K — that Lordstown had breached an agreement made in November 2022 obligating Foxconn to invest up to $170 million in share purchases. (See Lordstown Motors Gives 2 Board Seats to Foxconn.)
Foxconn purchased $22.7 million of common stock and $30 million in preferred stock in November, according to Lordstown, and is now obligated to invest another $117.3 million in additional stock, according to the 8-K.
Foxconn, however, argued in its letter that the action by Nasdaq put the company in breach of the agreement; Lordstown replied that Foxconn cannot unilaterally pull out of the agreement.
“The company is in discussions with Foxconn to seek a resolution regarding these matters; however, to date, Foxconn has declined to revoke its invalid termination notice and has failed to confirm that it will proceed with the subsequent common closing or any preferred stock closing,” Lordstown wrote to the SEC. If the additional investments “do not occur, the company will be deprived of critical funding necessary for its operations.”
Foxconn said in a statement Tuesday that it remained open to continuing negotiations with Lordstown.
The two companies have been developing one electric vehicle, the Endurance pickup truck, which they hope to sell to commercial customers. Production of the truck has been repeatedly slowed or stopped by parts shortages and inadequate funding. Fewer than 40 trucks have been fully assembled. A recall in February to replace suspect parts in the few trucks that had been sold did not help the company’s reputation with investors. (See Lordstown Motors Recalls Endurance Electric Truck.)
Monday’s announcement of a possible bankruptcy filing accelerated the decline of the company’s share price, which tumbled to 25 cents midday before rebounding, ending the day at 39 cents. The share price on Tuesday was hovering in the mid-40-cent range. Over the last 52 weeks, the price was as high as $3.73, still a steep decline from a high of $31.40 in September 2020.