Lordstown Motors is down. 

For those who may not remember, the company was founded in 2018, and was hailed in 2019 by then-President Donald Trump, after its takeover of a former General Motors plant in Lordstown, Ohio.

The young company was then riding 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.

But five years later, the electric vehicle upstart is the first of all young Tesla competitors to file for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware, after a long nightmare. 

The Lordstown, Ohio-based company explained in a statement issued on Jun. 27 that this decision is due to the fact that it had no choice, because its partner Foxconn, which is one of the main suppliers of Apple, abandoned it.

Bankruptcy Is the “Only Viable Option”

The bankruptcy filing will make it possible to carry out a strategic restructuring, says the manufacturer of the EV pickup truck Endurance, which has decided to put itself up for sale by “commencing a comprehensive marketing and sale process for its all-electric Endurance pickup truck and related assets.”

“As one of the early entrants to the EV industry, we have delivered the Endurance, an innovative and highly-capable EV with significant commercial and retail potential – and had subsequently engaged with Foxconn in a purposeful, strategic partnership to leverage this expertise into a broader EV development platform,” said CEO Edward Hightower in a statement. “Despite our best efforts and earnest commitment to the partnership, Foxconn willfully and repeatedly failed to execute on the agreed-upon strategy, leaving us with Chapter 11 as the only viable option to maximize the value of Lordstown’s assets for the benefit of our stakeholders.”

“We will vigorously pursue our litigation claims against Foxconn accordingly.”

Lordstown  (RIDE) – Get Free Report has indeed filed a complaint against Foxconn, which he accuses of fraud and broken promises.

Last November, Foxconn, formally known as Hon Hai Precision Manufacturing, announced that it would take an 18.3% stake in Lordstown Motors, 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.

Legal Fight

Last month, Lordstown said that Foxconn honored 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 two companies received clearance from the Committee on Foreign Investment in the United States (CFIUS).

The carmaker received CFIUS clearance on Apr. 25, but Foxconn didn’t buy more Lordstown shares, according to the carmaker. In total, Foxconn has invested about $52.7 million in Lordstown as part of the agreement, and currently holds an almost 8.4% stake in the EV maker.

“Foxconn consistently failed to honor its agreements,” Lordstown alleged in the lawsuit, adding that, after getting the valuable assets it desired upfront, Foxconn then “sabotaged” the carmaker’s business, “starving it of cash and causing it to fail.”

“Instead of building a thriving business for the benefit of all Lordstown’s stakeholders, Foxconn maliciously and in bad faith destroyed that business, costing Lordstown’s creditors and shareholders billions.”

The group is asking the court to award damages of an unspecified amount.

Foxconn, in turn, has accused Lordstown Motors of having breached the contract, by letting the stock price fall below $1 a share for too long. 

On Jun. 27, the Taiwanese company said it had maintained “a positive attitude in conducting constructive negotiations with Lordstown,” but added that the carmaker had been reluctant to execute the investment agreement in accordance with its terms.

Foxconn added that it reserved the right to pursue legal action.

Looking for a Buyer

At the end of May, Lordstown tried to respond to Foxconn’s criticisms by carrying out a reverse stock split, which usually boosts the stock price by proportionately cutting the number of shares outstanding.

It was a 1-for-15 split, which meant that an investor who owned 15 shares would have received 1 share at 15 times the presplit price, according to a statement. Investors with less than 15 shares would have been paid the market value of their shares in cash. Fractional shares would also have been paid in cash.

The problem is that a reverse split often leads to a drop in the stock price, because investors see it as a sign of a company’s financial weakness. This is the case with Lordstown Motors, whose share price fell by more than 4% at last check.

Lordstown’s shares fell more than 60% to $1.10 on Jun. 27 in pre-market trading. The day before, these shares had ended the session down 7.21% at $2.765.

The carmaker has produced 56 Endurance vehicles, its pickup truck, and delivered 18 to customers. Endurance, base-priced at a little over $65,000, competes with Rivian’s R1T, Ford’s F-150 Lightning, and General Motors’ GMC Hummer EV. 

In a few months, Tesla will join the competition with its Cybertruck, while GM will market the electric version of the Chevrolet Silverado.

Faced with this competition, it seems that Lordstown did not have much luck without the funds to support its operations.

Lordstown is however “confident that a buyer could utilize the Endurance platform to create multiple EV variants and take the product to the next level.”