Lordstown stock fell 23% as investor Foxconn alleged breach of agreement

May 1 (Reuters) – Lordstown Motors Inc. warned Monday that it may have to file for bankruptcy due to uncertainty over a $170 million investment deal with major shareholder Foxconn Inc (2317.TW), sending shares of the Ohio-maker The electric van is up 23%.

Foxconn struck a deal in November to take a roughly 20% stake in the loss-making US company for $170 million. The company has since invested $52.7 million and is reluctant to purchase additional shares, Lordstown said, citing a violation of their agreement.

Foxconn said in a statement that it will fulfill its obligations under the agreement and remains open to continuing talks and working together to reach a mutually acceptable outcome.

The dispute marks a new setback for the American company, which is suffering from dwindling cash balance and production challenges. The company said in February it made only 37 trucks for sale and recalled 19 vehicles that were either delivered to customers or used internally.

“There is significant doubt as to our ability to continue as a going concern,” Lordstown said in a statement, referring to its dispute with Foxconn over the investment deal.

She said that without a solution with Foxconn or with other financing or new partners, she may have to file for bankruptcy or stop operations, adding that the company is in talks with the Taiwanese company to reach a solution.

It dismissed Foxconn’s allegations that it breached its agreement, saying the allegation was based on a notice of delisting sent by Nasdaq to the Ohio-based automaker.

Lordstown said last month that the notice had no immediate effect on the listing of its shares and that it had until Oct. 16 to restore compliance with Nasdaq rules.

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“Foxconn’s actions are completely unjustifiable,” Lordstown said in a statement. “Foxconn’s behavior has caused material – and irreparable – damage to the company.”

“In the absence of a timely resolution, we will take all necessary measures to protect our business interests and enforce all of our rights and remedies.”

Shares of Foxconn, officially called Hon Hai Precision Industry Co Ltd, traded up 0.5% Tuesday in Taipei, in line with the broader market (.TWII).

Shares of Lordstown, which at one point fell more than 50% on Monday, closed down 23%, or 12 cents, at 40 cents, in heavy trading. They’re down another 5% in after-hours trading.

The investment deal follows a separate $230 million sale of the Lordstown, Ohio plant to Foxconn last year, as the Taiwanese manufacturer diversified into the electric vehicle business for a new revenue stream.

Lordstown began producing Endurance electric pick-up trucks at the factory last September in collaboration with Foxconn.

The former GM plant is one of the largest single-line vehicle assembly plants in the world. It can make about 320,000 vehicles a year, excluding overtime.

Additional reporting by Tyachi Datta in Bengaluru; Editing by Anil D’Silva

Our standards: Thomson Reuters Trust Principles.

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