Written By Lordstown Motors, an electric vehicle (EV) start-up, is facing the risk of bankruptcy following a dispute with Foxconn, a Taiwanese multinational electronics contract manufacturer. The Ohio-based company has been struggling to secure funding for the production of its electric pickup truck, the Endurance, and the recent legal battle with Foxconn has put its future in doubt.
The conflict between the two companies began in January 2021 when Lordstown Motors announced a partnership with Foxconn to build its EVs. Under the agreement, Foxconn was supposed to provide engineering and manufacturing services to Lordstown Motors for the production of the Endurance. The partnership was seen as a crucial step for Lordstown Motors to enter the EV market, which is dominated by Tesla and other established players.
However, the partnership quickly soured after Lordstown Motors announced that it was scrapping plans to use a new battery technology developed by LG Chem, a South Korean company, in its electric pickups. Instead, it opted for a different battery technology, which Foxconn claimed was inferior and would not meet the required specifications. In response, Foxconn halted work on the project, citing concerns over the viability of the new battery technology.
The dispute has escalated in recent months, with both companies filing lawsuits against each other. Lordstown Motors has accused Foxconn of breaching its contract and failing to provide the necessary support for the production of the Endurance. Foxconn, in turn, has accused Lordstown Motors of misrepresenting its progress in developing the electric pickup truck and failing to pay for the work already done.
The legal battle has further undermined investor confidence in Lordstown Motors, which has been struggling to raise funds to finance the production of the Endurance. The company went public in October 2020 through a merger with a special purpose acquisition company (SPAC) called DiamondPeak Holdings. At the time, the deal valued Lordstown Motors at $1.6 billion, and the company raised $675 million in the process. However, since then, its share price has tumbled, and it has been beset by production delays, management shake-ups, and regulatory probes.
The conflict with Foxconn has added to the company’s woes, with investors worried that the legal battle could further delay the production of the Endurance and drain the company’s already dwindling cash reserves. Lordstown Motors has already warned investors that it may not have enough funds to continue operations beyond this year if it fails to secure additional financing.
The situation has also raised concerns about the SPAC market, which has become a popular way for start-ups to go public without undergoing the traditional IPO process. Critics have argued that SPACs, also known as blank-check companies, are often used to circumvent regulations and allow start-ups to make bold claims about their future prospects without the same level of scrutiny required in a traditional IPO. Lordstown Motors is just one example of a company that has faced financial difficulties after going public through a SPAC.
The situation facing Lordstown Motors underscores the challenges facing EV start-ups as they try to compete with established players such as Tesla. Despite growing demand for EVs, the industry remains highly competitive, and many start-ups are struggling to secure the necessary funding to develop and produce their vehicles. The recent chip shortage has only added to their problems, leading to production delays and supply chain disruptions.
Lordstown Motors has been seen as a promising player in the EV market, with its electric pickup truck targeting the commercial fleet market, but the company’s future is now in doubt. The legal battle with Foxconn is likely to be a protracted one, and even if Lordstown Motors emerges victorious, it may struggle to convince investors that it has a viable business model and the necessary resources to compete in.
