Lordstown Motors Corp. (RIDE) shares experienced a 29% decline on Monday as the electric vehicle (EV) manufacturer disclosed in a regulatory filing that Taiwanese electronics contract maker Foxconn intends to terminate their partnership. The company warned that without the deal, it would lack essential funding for its operations. Lordstown and Foxconn, which is also known as Hon Hai Technology Group, originally announced their partnership in 2021, and in May 2022, Foxconn acquired Lordstown’s factory. In addition, the two parties have an investment agreement.
The termination of the deal could deal a significant blow to Lordstown Motors, a startup EV manufacturer that has struggled to establish itself in the competitive electric vehicle market. The company’s endurance pickup truck, which it has been developing, has yet to enter mass production, and Lordstown Motors is facing financial headwinds. As a result, the loss of business partnership and funding from Foxconn could plunge the company into deeper desperation.
Conversely, this move might be considered strategic for Foxconn, a company that has sought to establish a foothold in the electric vehicle market. Foxconn, historically known for its consumer electronics manufacturing capabilities, adopted a strategy of extending its reach into the automotive sector in hopes of tapping into the market’s growth potential. If Foxconn severs ties with Lordstown Motors, it may well have identified more lucrative partnership opportunities in the industry.
Lordstown Motors has faced several challenges since its formation, chief of which are issues surrounding management and fundraising. Last year, the company found itself embroiled in controversy when Hindenburg Research accused it of misleading investors and inflating the number of pre-orders it had for its endurance pickup. This controversy led to the resignation of its CEO Steve Burns and CFO Julio Rodriguez.
Furthermore, the EV manufacturer has faced significant headwinds in securing sufficient funding to bring its endurance pickup into mass production. In the past, the company has reportedly sought financial assistance from the U.S. Department of Energy and has explored selling non-core assets to boost its balance sheet. Given these financial challenges, the cancelation of its agreement with Foxconn could significantly hamper Lordstown Motors’ ability to remain solvent and competitive in the electric vehicle market.
As part of its deal with Lordstown Motors, Foxconn was supposed to manufacture EVs for the startup in return for a stake in the company. In December, the Taiwanese manufacturer completed a $230 million investment in Lordstown Motors, acquiring an 11.5% ownership interest. To strengthen the partnership, the two companies agreed on a binding term sheet to form a joint venture to manufacture Lordstown’s endurance pickup in Foxconn’s factory, originally owned by Lordstown Motors.
However, the recent regulatory filing with the U.S. Securities and Exchange Commission (SEC) by Lordstown Motors indicates that Foxconn is now seeking to terminate the agreement. The filing states that Foxconn has notified Lordstown of its “alleged right to terminate the Master Transaction Agreement” and plans to notify the SEC and the NYSE “that the Stock Purchase Agreement has been terminated.”
While the implications of this termination are not yet clear, the financial and operational challenges facing Lordstown Motors cannot be overlooked. The loss of critical funding from Foxconn could potentially lead the company into a precarious financial situation, particularly as it wrestles with the ambitious goal of mass-producing its endurance pickup.
Moreover, the termination could serve as an indication of larger issues within the company and its management, as well as damage its reputation in a fiercely competitive market. Given the recent announcement of Ford’s entry into the EV pickup market with its F-150 Lightning, the need for a reliable plan and robust partnerships is more critical than ever.
In conclusion, the impending termination of the partnership between Lordstown Motors and Foxconn threatens to jeopardize the future of the struggling EV manufacturer. The loss of much-needed funding and manufacturing support from the Taiwanese giant could exacerbate existing financial and operational challenges, draw negative attention to the company’s management, and hamper its ability to compete in the booming market for electric vehicles. Meanwhile, for Foxconn, the termination might open up new opportunities within the automotive sector as it continues its strategic diversification into the EV space.
