Lordstown Motors has been in a similar position before, and it seems as though it is at risk of failing again. The company has been struggling to stay afloat for years, and it seems as though things will only get worse
The startup company, EV startup, had warned investors that Foxconn may pull out of a critical funding deal, and as a result, the company may have to file for bankruptcy. This development is alarming because it highlights the vulnerability of startups who rely on large corporations for financial backing. If Foxconn does not keep its promise to invest in EV startup, it could have serious consequences for the company’s operation and long-term viability.
Foxconn stated that it was in breach of the investment agreement because its stock price fell below $1 for 30 days and was at risk of being delisted on the Nasdaq exchange. If Foxconn does not resolve the issue within 30 days, it is threatening to terminate the agreement. This could have major implications for Lordstown as Foxconn is one of its largest investors.
The standoff between Foxconn and Lordstown reflects the complicated relationship between businesses and worker unions in the United States. On one hand, business groups argue that enforcing worker rights through strikes or other forms of protest can disrupt production and cost jobs. On the other hand, many unions see their role as ensuring that workers are fairly compensated for their labor, which they say is necessary to maintaining a strong economic base.
If the investment doesn’t go through, Lordstown may have to close its doors. It is evaluateing legal and financial alternatives in the event a resolution is not reached.
The company’s chairman and CEO, Jeffrey Lordstown, stated in the filing that he has been unable to secure additional financing and is “under considerable uncertainty” about the future of his company. This announcement comes after months of rumors that Lordstown was looking to sell his company. The BOM cost for the Endurance, which is expected to be higher than the retail price, as well as material losses and costs from ongoing litigation add to Lordstown’s concerns.
If the company is not able to resolve the dispute with Foxconn or identify other sources of funding, it will file for bankruptcy. This could mean job losses for many employees and a possible decrease in quality products.
In November of last year, Foxconn agreed to increase its investment in Lordstown Motors by buying $170 million in common stock and newly created preferred shares. The investment came a year after Lordstown sold its 6.2-million-square-foot factory to Foxconn. It was part of a deal that also included a direct investment of $50 million from Foxconn. As part of that agreement, Foxconn agrees to help Lordstown Motors manufacture their Endurance pickup truck which is set for release in 2020
According to the Committee on Foreign Investment in the United States, the $100 million direct preferred stock investment from Foxconn replaced the joint venture funding announced last year. The investment is to occur in tranches and is subject to a review by the committee. However, this does not mean that Foxconn has abandoned its plans for a plant in Lordstown; it simply means that they have revised their approach so as to comply with CFIUS’ requirements.
