May 1 (Reuters) – Lordstown Motors ( RIDE.O ) warned on Monday it was sending shares of the Ohio-based company to a $170 million investment deal with its major shareholder Foxconn ( 2317.TW ) due to uncertainty. The electric truck manufacturer is down 23%.
Foxconn struck a deal in November to buy a nearly 20% stake in the money-losing U.S. company for $170 million. It has since invested $52.7 million and stalled on buying additional shares, claiming they breached their contract, Lordstown said.
In a statement, Foxconn said it was fulfilling its obligations under the agreement and was open to continuing negotiations and working together to reach a mutually acceptable outcome.
The dispute is a fresh setback for the US company, which has been facing dwindling cash reserves and production challenges. In February, the company said it sold only 37 trucks and recalled 19 vehicles delivered to customers or used locally.
“There is substantial doubt about our ability to continue as a going concern,” Lordstown said in a filing referring to its dispute with Foxconn over the investment deal.
Foxconn, without other financing or a resolution with new partners, could be forced to file for bankruptcy or cease operations, and it said the company was in talks with the Taiwanese company to reach a settlement.
It rejected Foxconn’s allegation that it breached its agreement, a claim based on a listing notice sent by Nasdaq to the Ohio-based automaker.
Lordstown said last month’s announcement did not have an immediate impact on its stock listing, and Nasdaq has until Oct. 16 to comply with the rules.
“Foxconn’s actions were completely unwarranted. Their conduct has materially — and is becoming irreparably — harmful to the company,” Lordstown said in a statement.
“In the absence of a timely settlement, we will take all necessary steps to protect our business interests and enforce all of our rights and remedies.”
Shares of Foxconn, formally known as Hon Hai Precision Industry Co Ltd, rose as much as 1.4% in Taipei on Tuesday, outperforming the broader market (.TWII).
Shares of Lordstown, which fell more than 50% at one point on Monday, closed down 23%, or 12 cents, at 40 cents in heavy trading. They were 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 contract manufacturer turns to electric vehicle manufacturing for a new source of revenue.
Lordstown began manufacturing its Endurance electric pickup trucks last September at a factory in partnership with Foxconn.
The former GM plant is one of the largest single-line vehicle assembly plants in the world. It can produce about 320,000 vehicles a year, excluding overtime.
Report by Tyashi Dutta in Bangalore; Cinematography by Anil de Silva
Our Standards: Thomson Reuters Trust Principles.
