Shares of electric vehicle (EV) manufacturer Lordstown Motors (NASDAQ:RIDE) went into freefall on Monday following the potential loss of a critical investment deal. Foxconn Technology — also known as Hon Hai Precision Industry (OTCMKTS:HNHPF) — threatened to pull out of a funding agreement, citing a breach of contract. Essentially, Foxconn sounded the alarm that RIDE stock had fallen below $1 per share for too long.
Understandably, Foxconn is worried about RIDE stock falling out of compliance with the Nasdaq listing rules. The rules state that a security’s minimum bride price must be $1 or more for 10 consecutive business days to avoid delisting. According to The Wall Street Journal, Foxconn stated it would back out of the agreement if the issue was not resolved within 30 days.
In response, Lordstown warned in a regulatory filing that failure to resolve the dispute may require it to curtail operations. In the worst-case scenario, it may be forced to cease operations and seek bankruptcy protection.
“Foxconn’s actions are completely unwarranted,” stated Lordstown. “Their course of conduct has resulted in material—and what is becoming irreparable—harm to the company.”
RIDE Stock Faces Severe Risks
Despite Lordstown’s stern warnings, the company believes the deal with Foxconn remains intact. Further, the company intends to enforce its rights under the agreement. Foxconn didn’t immediately respond to the Journal’s request for comment. At the time of writing, RIDE stock fell almost 40% for the day.
According to CNBC, under the terms of the agreement, Foxconn is supposed to invest $47.3 million in Lordstown after the companies receive regulatory approval from the Committee on Foreign Investment in the U.S. On April 25, the agency issued said approval, which means Foxconn must make good on the investment by May 8.
However, Lordstown raised concerns that further investment won’t come in before that deadline. As well, it asserts that Foxconn doesn’t appear to be making a good-faith effort to complete an EV plan which represented one of the deal’s milestones.
Per CNBC, the two enterprises agreed to finalize a plan to jointly develop a new EV by May 7. However, Lordstown stated that the plan failed to finalize because Foxconn refused to make “commercially reasonable efforts” to finish it.
Why It Matters
According to TipRanks, Wall Street analysts rate RIDE stock as a consensus sell. Within the past 90 days, this assessment breaks down to one “hold,” one “sell,” and significantly, no “buys.” In the past year, four experts covered RIDE, breaking down as one “hold” and three “sells.”
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
