Lordstown Motors, a leading electric-vehicle start-up, has filed for Chapter 11 bankruptcy protection following a failed partnership with Apple’s supplier, Foxconn. This move underscores the significance of building capital and establishing strong partnerships in the EV industry.
The company issued a statement, announcing its decision to file for bankruptcy after the deal with Hon Hai Precision Industry (2317.Taiwan), also known as Foxconn, did not materialize as planned. As part of the restructuring process, Lordstown stated that it would pursue litigation against entities associated with Foxconn for fraud and contract breach.
CEO Edward Hightower confirmed that Lordstown had collaborated with Foxconn to expand its EV expertise beyond the Endurance (pickup truck) and into a more extensive EV development platform. However, despite their best efforts, Foxconn repeatedly failed to execute on the agreed-upon plan, leading to the breakdown of the strategic partnership.
Foxconn, for their part, denied Lordstown’s allegations in an email statement and accused the EV company of spreading false and malicious information. The company also emphasized that it reserves the right to pursue legal action against Lordstown.
Foxconn Drops Out of Lordstown Motors Deal Negotiations
Taiwanese electronics contract manufacturer Foxconn has reportedly ended negotiations with electric vehicle (EV) start-up Lordstown Motors, according to a company statement. Both parties were hoping to reach a solution that satisfied each stakeholder involved.
Despite the news, shares of other EV start-ups remain relatively unaffected. Canoo and Faraday Future Intelligent Electric saw gains of 2.9% and 1.8%, respectively, while Nikola experienced a rise of 4.6%. Meanwhile, investors have been keeping a close eye on shares of peer stocks.
On Tuesday, shares of Lucid jumped 6% in premarket trading after announcing a $1.8 billion private stock placement with the Saudi Public Investment Fund. While this deal means existing investors in Lucid own less of the company, capital is more important at this stage of the game since building a car business is an expensive venture.
Lordstown Motors’ stock has taken a severe hit since the news, falling 55% to $1.23 per share during premarket trading. However, the S&P 500 and Nasdaq Composite futures look promising, rising by 0.2% and 0.4%, respectively. Lordstown recently completed a 1-for-10 reverse stock split back in May, meaning shares are now trading for around 12 cents apiece based on share counts at the beginning of the year.
Lucid, Rivian, and Lordstown: A Look at Their Financial Status
Wall Street analysts estimate that Lucid Motors will utilize around $10 billion in the next few years before consistently generating profits. Amidst this, Lucid ended its first-quarter with approximately $4 billion in liquidity. Analysts predict that the company will start generating profits once its annual sales reach $13 billion or $14 billion. Lucid’s projected sales for 2023 are around $1 billion.
Rivian Automotive (RIVN) witnessed a rise of 1.3% in its premarket trading. It concluded its first quarter with almost $12 billion in cash.
Lordstown initiated its production by purchasing an Ohio factory from General Motors (GM). However, the company’s production was soon hampered due to quality issues. In the fourth quarter of 2022, Lordstown only managed to deliver three vehicles and stopped production eventually.
Lordstown took over the Ohio plant from GM in 2019 and then went public in 2020 by using a Special Acquisition Vehicle. The company secured approximately $675 million via this deal.
Recent times have taught investors that starting a successful car company takes a lot more than $675 million. Tesla (TSLA) needed nearly $9 billion before becoming profitable consistently in late 2019. This was when Tesla had already achieved a sales rate of approximately 400,000 a year.
Despite projecting profits for Lucid, Rivian, and Lordstown, they still have a long way to go before they reach Tesla’s heights. While starting a car company requires significant investment, it also requires creating a quality product and keeping up with consumers’ ever-changing demands.