Tesla Rival Is Collapsing

Lordstown Motors has just warned that it could very soon be forced to file for bankruptcy, because it would run out of the cash it needs to fund its operations.

Life is tough for automakers right now. 

Blame it on the economic slowdown, likely to turn into a recession in the coming months, as some economists are already anticipating. 

Consumers are therefore careful about their spending. Those who need a vehicle, look closely at the prices. Not only have prices not fallen much, but car credit has also become difficult to get. 

Banks have become very selective while raising interest rates. Basically, borrowing to buy your car is much more expensive than it was a year ago, because the Federal Reserve raised interest rates to fight a stubborn inflation.

Average interest rates for new car loans went from 4.4% in February 2022 to 7% in February 2023, according to Edmunds.com. Average interest rates for used-car loans went from 7.8% in February 2022 to 11.3% in February 2023.

A Major Dispute

Added to these problems for the manufacturers of electric vehicles, is the increase in the cost of the materials necessary for the development of the battery, such as cobalt, nickel, etc. It is even harder for EV upstarts, who are looking to either produce their first model or ramp up their production, as they have to face a price war launched by their main rival, namely Tesla  (TSLA) – Get Free Report. This year, the Austin, Texas-based carmaker has lowered the prices of its cars six times. This price-cutting strategy includes the prices of its two popular models — the Model 3 sedan and the Model Y SUV.

How can these young cash-strapped carmakers compete, when, for the moment, do not generate significant income? This is the question for Lucid  (LCID) – Get Free Report, Rivian  (RIVN) – Get Free Report, Fisker  (FSR) – Get Free Report and Lordstown Motors  (RIDE) – Get Free Report

The last group has just answered the question, by warning that it could file for bankruptcy shortly. The possible bankruptcy is due to the fact that the Taiwanese group Foxconn, with which Lordstown had reached an agreement relating to an injection of funds, threatens not to honor this deal any more. Foxconn accuses Lordstown of having breached the contract, by letting the stock price fall below $1 a share for too long, the carmaker said in a regulatory filing with the U.S. Securities and Exchange Commission (SEC).

“The company is in discussions with Foxconn to seek a resolution regarding these matters,” Lordstown said in the filing that you can read here. “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.”

It then warned that if it does not receive the funds “the company will be deprived of critical funding necessary for its operations.”

As a result of these uncertainties, “there is substantial doubt regarding our ability to continue as a going concern,” Lordstown continued, explaining that its ability to obtain additional financing is “extremely limited” under current market conditions.

Lordstown Motors


The carmaker said that the cost of the materials needed to build its first model — the Endurance — “is currently, and expected to continue to be, substantially higher than our selling price.”

“If we are unable to resolve our dispute with Foxconn in a timely manner on terms that allow us to continue operating as planned, identify other sources of funding, identify a strategic partner and resolve our significant contingent liabilities, we may need to curtail or cease operations and seek protection by filing a voluntary petition for relief under the bankruptcy code,” Lordstown warned.

It concluded by saying that in the case of a bankruptcy, the value for its creditors and stockholders is “uncertain.”

Foxconn has given Lordstown 30 days to resolve their dispute or it will back out of the deal, the carmaker said.

Last November, Foxconn, formally known as Hon Hai Precision Manufacturing, announced that it would take an 18.3% stake in Lordstown, as well as two seats on the board, for an equity injection of around $170 million. 

The deal, which would be run through Foxconn affiliate Foxconn Ventures Pte Ltd., would make it the biggest Lordstown shareholder, topping founder Stephen Burns. Foxconn purchased Lordstown’s Ohio-based facility in 2022. That plant, with Foxconn’s assistance, is now producing the carmaker’s Endurance pickup truck.

On Monday, Lordstown said that Foxconn closed part of the investment agreement in November, buying about $22.7 million of Class A common stock and $30 million of preferred stock.

The world’s biggest contract electronics manufacturer agreed to further buy about 26.9 million of Lordstown shares for about $47.3 million within 10 business days after the companies received clearance from the Committee on Foreign Investment in the United States (CFIUS).

The carmaker received CFIUS clearance on Apr. 25, giving the companies until May 8 to close the latest round of investment.

The Lorstown stock is down 59% this year, hovering around $0.4669. It is a stock market nightmare for the upstart EV, which was hailed in 2019 by then-President Donald Trump, after its takeover of a former General Motors plant. Lordstown was then surfing on the Republican president’s Made in America bandwagon. It promised to revive the auto industry in the region, by creating the jobs lost following the closure of the plant by GM  (GM) – Get Free Report.

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