Fears that Lordstown Motors (NASDAQ:RIDE) may go bankrupt are increasing today. This comes after the company said it will sue to make Foxconn (OTCMKTS:HNHPF) go through with its deal to take a roughly 20% stake in Lordstown. As of this writing, shares of RIDE stock are up about 1%.
Foxconn, a Taiwanese contract manufacturer that trades as Hon Hai Precision, originally planned to invest $170 million into making Lordstown’s Endurance pick-up truck. The company first invested $52.7 million but is now refusing to invest more, “balking at purchasing additional shares, citing a breach of their agreement.”
Lordstown has a market capitalization of around $57 million after a 1-for-15 reverse stock split last month. The company believes it may have to file for bankruptcy if it can’t find additional capital.
RIDE Stock: The Ride Is Ending
Foxconn is best known for helping assemble the Apple (NASDAQ:AAPL) iPhone in China. More recently, the company has sought to make electric vehicles (EVs) on the same basis, including in the United States.
The company bought Lordstown’s factory in Ohio — once a General Motors (NYSE:GM) assembly plant — last year. The value of the plant was listed as $230 million.
Production also began on the Endurance last year. Lordstown focused marketing on fleet buyers after Ford (NYSE:F), Rivian (NASDAQ:RIVN) and GM all delivered competing models. The Endurance costs $65,000, offers a range of 200 miles per charge and has a four ton towing capacity .
Earlier this year, Endurance production was paused over quality control issues. Production then resumed in April at a slower pace. Lordstown then reached a service and warranty agreement with Amerit Fleet Solutions.
After RIDE received a Nasdaq delisting notice, Foxconn said Lordstown breached their investment agreement. Lordstown’s subsequent 10-Q filing said the company would have to stop production without a new source of funds.
An 8-K filing followed that, with Lordstown saying terms of the stock sale had been adjusted for the reverse split. Hon Hai’s lawyers now say an adjustment wasn’t made.
What Happens Next?
It’s hard to see how a court would force Foxconn to pay $47 million for a 10% stake in a company now worth $57 million. The likeliest scenario is that Foxconn writes off its RIDE stock mistake.
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On the date of publication, Dana Blankenhorn held a long position in AAPL stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
